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Philippines' SEZs Set Out to Woo Chinese and Middle East Investors

Rapid expansion of SEZ sector sees Philippines launch charm offensive to counter shortfall in overseas investment.

Photo: Visteon: A core tenant of the Greenfield Auto Park, an SEZ in the Philippine’s Laguna province.
Visteon: A core tenant of the Greenfield Auto Park, an SEZ in the Philippine's Laguna province.
Photo: Visteon: A core tenant of the Greenfield Auto Park, an SEZ in the Philippine’s Laguna province.
Visteon: A core tenant of the Greenfield Auto Park, an SEZ in the Philippine's Laguna province.

In order to sustain its recent impressive economic growth, the Philippines is competing hard with neighbouring ASEAN nations to attract investment, particularly from companies in China and the Middle East. At the same time, according to the Asian Development Bank, the country will enjoy GDP growth of 6.4% this year, followed by 6.6% in 2018. It is a combination of these two factors that has seen the country's Special Economic Zones (SEZs) assume a far greater significance in recent years.

The first SEZ in the Philippines was established following the enactment of the 1995 Special Economic Zone Act, which provided the legal framework for operating industrial estates and parks, export processing zones and other economic development zones. The responsibility for co-ordinating, planning and managing such facilities was then delegated to the Philippine Economic Zone Authority (PEZA), a body operating under the auspices of the country's Department of Trade and Industry.

Now, 22 years later, the expansion of the country's SEZ programme has been dramatically accelerated. In 2016, PEZA approved 61 new SEZs, including three manufacturing projects, five agro-industrial complexes, one medical tourism area, 50 IT centres and parks, and two tourism companies. Despite this, the number of investment pledges approved by PEZA actually decreased, dropping to PHP218.2 billion (US$4.4 billion) in 2016, a 26% fall from the PHP295 billion secured the previous year.

More recently, the government is said to have approved 13 new SEZs between President Duterte's inauguration on 30 June 2016 and March 2017. These include 11 IT-focussed special zones in Belanga, Cebu, Taguig City, Parañaque City, Pasig City and Quezon City. Approval on at least 30 more SEZs is said to be pending.

As of April 2017, there were 366 economic zones operating across the country, comprising 74 manufacturing zones, 250 IT parks, 21 agro-industrial zones, 19 tourism zones, and two medical tourism parks. In total, these SEZs now host about 3,900 businesses.

Signalling that the SEZ sector is set to expand still further, Charito Plaza, Director General of PEZA, said: "Under my watch, we are going to build Special Economic Zones in every province, city and region. We don't want any land to lie abandoned or idle."

In line with this, new incentives are to be offered to would-be SEZ investors. In December 2016, PEZA began lobbying the government to allow 99-year land leases for projects based in the country's SEZs. Under the terms of the original Special Economic Zones Act, foreign investors are only entitled to 50-year lease contracts (with a one-time extension of 25 years) on all relevant buildings and land.

Explaining the need for this period to be extended, Plaza said: "We want a longer term because we're competing with other economic zones. Dubai and Vietnam, for instance, offer 99-year leases." Such a change, however, would require an amendment to the existing legislation, something that is not anticipated in the short term.

Among the other incentives that have been mooted is the exemption of SEZs from the proposed two-year moratorium on the re-purposing of farmland for non-agricultural use. According to PEZA, such a concession would facilitate the development of two new public SEZs per region, a total of 36 nationwide. At present, only four of the Philippines' SEZs – Cavite, Mactan, Baguio and Pampanga – are under public ownership. Offering foreign investors rent-free status for up to 10 years at the new publicly owned SEZs is also under consideration.

One investment option that has been rejected, however, is online gaming, the expansion of which is a highly controversial issue. In a statement issued in April of this year, PEZA said it would not approve applications by business process outsourcing (BPO) companies operating in the online-gaming sector as this was beyond the remit of the country's SEZs.

As the Philippines seeks to finance its burgeoning portfolio of SEZs, Chinese companies are being actively wooed for investment. According to PEZA, as of the end of 2016, there were 101 Chinese firms active in its economic zones, a number it is now committed to increasing.

The Gulf States are also seen as possible sources of inbound investment. In February 2017, PEZA embarked on a charm offensive across the Middle East, with investors in the UAE, Saudi Arabia and Qatar specifically targetted. It has since been reported that some $110 million in investment pledges were secured during the course of the trip.

Geoff de Freitas, Special Correspondent, Cebu

Content provided by Picture: HKTDC Research
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