15 June 2017
Venture Opportunities in the Philippines
According to the Asian Development Bank, the Philippines is poised to see 6.4 per cent GDP growth this year, followed by 6.6 per cent in 2018. In order to sustain economic growth, the country is competing hard with neighbouring ASEAN nations to attract investment, particularly from companies in China and the Middle East. These two factors are why the Philippines’ Special Economic Zones (SEZs) have assumed far greater significance in recent years.
The country’s first SEZ 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 coordinating, 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.
The expansion of the country's SEZ programme has greatly accelerated 22 years since. 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 ₱218.2 billion (US$4.4 billion) in 2016, a 26 per cent fall from the ₱295 billion secured the previous year.
More recently, the government reportedly approved 13 new SEZs since President Rodrigo Duterte's inauguration in June 2016 and as of March 2017. These include 11 IT-focused special zones in Belanga, Cebu, Taguig City, Parañaque City, Pasig City and Quezon City. Approval of 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. Among them is the Greenfield Auto Park, located in the northern Philippine province of Laguna.
According to Charito Plaza, Director General of PEZA, the SEZ sector is set to expand further. "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," Mr Plaza said.
In line with this, new incentives will 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.
"We want a longer term because we're competing with other economic zones. Dubai and Vietnam, for instance, offer 99-year leases," said Mr Plaza. Such a change, however, would require amending existing legislation, something unlikely to happen 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, since 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 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 United Arab Emirates, Saudi Arabia and Qatar specifically targeted. It has since been reported that some US$110 million in investment pledges were secured during the course of the trip.
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