The role of special economic zones in nationwide progress

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Ariel F. Nepomuceno

North Point

If we are to become an economic tiger finally, we have to optimize the strategic contribution of the special economic zones to our nationwide progress. Metro Manila must not be the sole beneficiary of the economic improvements that we are now witnessing. In fact, it is imperative that the provinces and other cities outside the National Capital Region must compete in terms of investments and growth. President Rodrigo Duterte, on June 17, actually ordered a moratorium on eco-zone applications in Metro Manila.

The good news is there’s a conscious program in the government’s Medium Term Development Plan (MDTP) to spread the support for investors locating in as many cities and provinces as possible. And in particular, the special economic zones are given adequate incentives if they are in consonance with the said MDTP. After all, the much-debated initiative for federalism might encounter significant challenges that threaten its immediate realization. Hence, we must seriously take advantage of the low-lying fruit that are available to us now which could spur substantial and broad excitement in various business sectors.

There are 4,382 firms that are registered in the Philippine Economic Zone Authority (PEZA) which is now under the leadership of Director General Charito Plaza. These firms avail of the support and incentives that are granted by the government by virtue of RA 7916, otherwise known as the “Economic Zone Act of 1995.” The list of support includes tax and duty free importation of raw materials, capital and equipment, fiscal incentives, and exemptions from local and national taxes except on real property taxes on the land owned by the developers.

In lieu of the usual national income tax is a 5% tax on their gross income, 3% of which is for the national government, 1% for the local government where the special economic zone is located, and another 1% for the development fund for the adjacent and contiguous municipalities outside the economic zone.

Outside of the law and a number of government circulars that guarantees the official incentives for them is the highly professional caliber of the leaders and managers of the PEZA and individual Economic Zone Authorities. I have, for example, recently personally experienced the impressive handling of our business applications at the Clark Freeport Zone under the management of Clark Development Corp. (CDC). Their Vice-President for Business Development, Eva Tejada, and her Assistant Vice-President Rodem Perez made our investors confident and impressed. If we have more of their kind, our bureaucracy will be an asset in strengthening our economy.

Notwithstanding some alleged abuses being committed in the special economic zones by unscrupulous smugglers or the questionable support programs such as the 20-year income tax holiday for some firms, the economy has benefitted from these zones in general. Such abuses, if true, will not be condoned nor tolerated by Director General Plaza. We hear good words about him.

To name a few contributions of these special economic zones, there are substantial foreign exchange earnings generated in these special zones especially because of their non-traditional exports. Thousands of jobs were created locally by the billions of investments in these areas. In particular, Foreign Direct Investments (FDIs) are attracted to these growth areas. And lastly, the transfer of technology, management systems, and backward linkages are handed over to our local talents and human capital.

The role of the special economic zones must be further enhanced alongside our desire to put an end to the massive poverty that has long plagued our society. We just have to address the objective improvements being suggested in order to clearly rationalize the incentives for the business enterprises that operate in these areas.

On a more ambitious scale, we can also more aggressively attract investors that would establish our strong light industry sector. In the future, we can move towards establishing a possible heavy industry such as an integrated steel-manufacturing backbone. Though in the news already, there will be one in PIVIDEC in Cagayan de Oro with a $2.4 billion investment.

We are on the right track because we have sufficient local manpower available for the economic zones. And continuous professional management and legislative support for the growth of these special economic zones will catapult the economy to success.


Ariel F. Nepomuceno is a management consultant on strategy and investment.