Over the years Central Visayas’ key city, Cebu, has grown into one of the country’s most significant provincial economies and an attractive destination for foreign direct investment (FDI). Formerly the country’s colonial capital, and currently known as the Queen City of the South, Cebu’s central location has positioned the island as a natural entry point and trading centre for the southern Philippines.
Located within Cebu province, Metro Cebu, which includes three politically independent cities – Cebu City, Lapu-Lapu and Mandaue – and 10 other local government units (LGUs), is the nation’s second-largest metropolitan area, as well as a thriving property market, a global outsourcing destination and a key player in the domestic tourism industry.
Central Visayas’ gross regional domestic product (GRDP) grew by 4.8% in 2015, compared to 7.8% a year earlier, according to the Philippine Statistics Authority (PSA), a dip that is principally attributed to weaker exports due to uncertain global economic conditions and the onset of El Niño. Despite this, the region has expanded by an average annual GRDP growth rate of 7.2% from 2011 to 2015, and has consolidated its place as the fourth-largest regional contributor to national GDP. Industry (36.9%) and services (57.2%), largely generated by tourism-related labour and business process outsourcing (BPO), remain the two major components of Central Visayas’ GRDP, with Cebu province providing the bulk of economic activity for the region. Its performance has led Cebu to rank as the richest province in the Philippines, with a net worth close to P29bn ($613.5m) in 2015, according to the Commission on Audit’s “Annual Financial Report for LGUs”, a jump of more than P300m ($6.3m) from 2014.
In The Air
Whereas Manila struggles with congestion at its main gateway, Ninoy Aquino International Airport (NAIA), Cebu provides a viable alternative via a secondary airport. Bidded out in 2014 under then-President Benigno Aquino III’s public-private partnership programme, the expansion of the Mactan Cebu International Airport (MCIA), the country’s second-busiest gateway, was undertaken by a partnership of Filipino-owned Megawide Construction and Bangalore-based airport operator GMR Infrastructure, yielding immediate benefits for the province. In 2016 passenger volume at MCIA grew by 13%, from 7.8m a year before to 8.9m. The number of domestic travellers increased 11% to 6.7m, while international passengers rose by 21% to 2.2m. Aircraft traffic likewise expanded by 13% between 2015 and 2016, from 62,213 to 71,543 flights. The airport currently services a total of 27 domestic and 16 international destinations, with direct flights to China, the UAE and the US, among others. Based on an analysis by the CAPA Centre for Aviation, MCIA will surpass the 10m annual passenger milestone by 2018, in time for the completion of its new terminal, which is designed to increase the airport’s annual capacity to 12.5m passengers.
Given the size of the island – currently the fifth most populated – the need for additional air connectivity in the medium term has become a priority, especially as Mactan Island, where MCIA is located, is connected by only two existing bridges. The province currently has two airstrips, one in the Bantayan Island in northern Cebu, and one in the Camotes Islands on the east, both of which are being eyed for redevelopment so they can accommodate commercial flights and boost tourism opportunities in northern Cebu. The long-term provincial plan is to look for alternative sites in mainland Cebu where a new airport can be developed.
The Cebu Ports Authority (CPA) has accredited 20 seaports in the province, although many of these facilities are in need of upgrades and the necessary infrastructure to connect them to national roads. The principal shipping hub in Visayas, the CPA-operated Cebu International Port (CIP), has reached a utilisation rate that hovers around 97%. As a result, on November 2016 the National Economic and Development Authority (NEDA) approved a P9.2bn ($194.6m) expansion of the CIP based on a revised feasibility study by the Korean International Cooperation Agency, which includes the construction of a new seaport in northern Cebu on 25 ha of reclaimed land. Existing CIP facilities will be maintained for general shipping and break-bulk cargo. The project is expected to be completed by 2020 and will increase container yard capacity from the CIP’s current 7373 twenty-foot equivalent units to 14,400. A similar proposal for an 85-ha new port is also being undertaken by private Philippine developer Mega Harbour Port.
Given the fragmented nature of the island provinces of Central and Eastern Visayas, bridge connectivity is being eyed by the current administration to spur development in these regions. The P28bn ($592.3m) Cebu-Cordova Link Expressway broke ground on March 2017. The project will build a third connecting bridge between Mactan Island and mainland Cebu to complement the existing Osmeña and Marcelo Fernan bridges. The 8-km toll bridge, a joint venture between the local governments of Cebu City, the Municipality of Cordova and the country’s largest toll road operator, Metro Pacific Tollways, will ease traffic and improve the flow of commerce within the province. The project also falls within the broader plans of the national government to link the islands of Eastern Visayas, in particular through the ambitious $1bn Iloilo-Guimaras-Negros-Cebu Link Bridge project, which NEDA aims to start by 2017.
Tourism has been one of Cebu’s major economic drivers, with tourist arrivals in Central Visayas during the January-to-October 2016 period amounting to 4.39m, a 10.68% increase over the 3.97m visitors recorded during the same period in 2015, according to Department of Tourism data. In 2015 Cebu accounted for 75% of all tourist arrivals to Central Visayas, with the total number of tourists reaching 3.3m. The number of foreign arrivals increased by double digits over the 2011-15 period, in particular due to improved air connectivity to international destinations. Lapu-Lapu City (55.57%) and Cebu City (35.76%) received the bulk of foreign tourists, followed by Cebu province (7.58%) and Mandaue City (1.09%). Travellers from South Korea, Japan and the US comprised the three largest foreign markets. As a result of its ongoing tourism boom, a property market overview released in 2016 by real estate consultancy Pinnacle noted the Metro Cebu market enjoys a total of 9500 hotel rooms with star classification as of 2016, a total stock that grew by 22% from 7800 rooms in 2015. In tandem with more hotels, average occupancy increased to 90% in 2016, compared to 85% the previous year.
According to strategic research firm Tholons, Cebu reached the seventh spot in its 2016 “Top-100 Outsourcing Destinations” report, having jumped one spot from 2015. The position places Cebu and Manila as the only two Philippine destinations within the top 10. Based on 2015 Philippine Economic Zone Authority (PEZA) data, Cebu has 27 IT parks and centres, and 210 PEZA-registered IT enterprises, numbers that have increased as international players, including Accenture, Convergys, Sykes and Teleperformance have expanded their business. Although Cebu has grown its voice services, the province is eyeing higher-value-added work and knowledge process outsourcing to drive future growth.
According to the property market overview from Pinnacle, Metro Cebu offered close to 900,000 sq metres of grade-A office space by end-2016, a 50% increase from 2012. Because of the added office stock, vacancy rates have been on the rise; grade-A office space vacancies grew from 2.5% in 2013 to 11.5% in 2015, according to the same report. However, the estimated monthly weighted average rent has also increased, from P455 ($9.60) per sq metre in 2013 to P525 ($11.10) in 2015. Currently, the number of BPO employees in Cebu is estimated at over 120,000, or nearly 10% of the total BPO headcount for the country, a figure expected to rise steadily as the industry continues to expand. Growth in services, whether tourism-related or BPO, contributed to the region’s January 2017 unemployment level of 4.6%, helping it stay far below the national 6.6% average.
Cebu currently hosts 11 PEZA-accredited special economic zones (SEZs), with major industrial estates including: the Mactan Economic Processing Zones 1 and 2, the Cebu Light Industrial Park, West Cebu Industrial Park, MRI EcoZone and New Cebu Township. These six SEZs cumulatively host 278 locators and employed 116,651 workers as of 2016, according to data from the Cebu provincial government. SEZs have been successful in attracting FDI and manufacturing activity, with the West Cebu Industrial Park in Balamban, a joint venture between Cebu-based Aboitiz Group and Japan’s Tsuneishi, being an integral part of the Philippines’ ranking as the fourth-largest shipbuilder. Given that all the existing SEZs are located in Cebu, the local government’s next move is to focus on the countryside and diversify into other sectors.