I was just reading an article, which stated that one of the main attractions of the Philippines Economic Zone Authority (PEZA) is that it insulates foreign investors from local politics. The particular piece talked about the Korean group Hanjin cancelling a shipyard that it had proposed to build in a special economic zone in Northern Mindanao.
The $2 billion project would have directly created about 40,000 long-term jobs together with lots of spin off economic activity, but Hanjin decided to call it off because, in its own words, “the LGUs wanted too much.”
This cancellation is far from being a unique incident. Things often go wrong with foreign direct investment initiatives and there is frequently some form of local power play behind the failure.
The numbers in connection with the economic zones and FDI are interesting. In 2013, the Philippine received $3.86 billion in FDI; in 2014, $6.2 billion. PEZA-approved investment for 2013 were P276 billion which at the exchange rate at the time was about $6.2 billion; not all approved investments would have been realized, of course. Despite the apparent inconsistency in the FDI figures they do serve to point out that the vast majority of foreign direct investment in the Philippines is made in the special economic zones. What is more is that the PEZA zones account for between 60 and 75 percent of all Philippines exports.
The investment that Hanjin called off was in an economic zone Phividec established in 2008. One of the reasons cited for that particular investment not going through was that the economic zone people did not do enough to protect the investors from exposure to local politics.
That special economic zones under effective management and governance can attract such amounts of FDI, produce such high proportions of exports and provide decent jobs for over 1.5 million Filipinos is a testament to just how difficult it is to successfully invest outside economic zones, particularly in the much needed Philippines infrastructure.
That FDI can be attracted to create decent jobs and to boost exports only when investors have the assurance that their investment will be protected from the [normal]Philippine business environment presents a topsy-turvy picture! Filipinos can and they do invest in special economic zones; but the extent of their investment is just that they own the land!
It is not the tax incentives that attract foreign direct investment to special economic zones; it’s the ease of doing business, to avoid the appalling bureaucracy, the foreign ownership restrictions and the local politics. Infrastructure investment is basically the preserve of local business and one only has to look around to see how successful that has been.
The potential of the Philippines is exemplified in the special economic zones while the difficulties foreigners encounter in doing business or investing outside the economic zones exemplifies the constraints on the potential of a nation strangled by competing self-interest.
If any further exemplification is needed, we can look to the success of the 12 million or so Filipinos working abroad. It tells us that escaping from the power plays, the politics, the self-interest, the greed and the nightmarish bureaucracy and confusion that typifies the Philippines “normal” business environment truly allows for unleashing the potential of the Filipino.
So what if many of these decent job opportunities are provided as a result of foreign capital and technology? Does it really matter? In any event, is it not a relatively short-term thing as workers skills and knowledge are enhanced through the experience and used in the future service of Filipino capital, if only the Filipino capitalists would themselves change their ways?
The Philippines needs FDI to create enough jobs and to improve the level of skills. Clearly from the export statistics the country sorely needs FDI for exports.
If the economic zones were not producing such high levels of export, the balance of trade would be at a crisis level, which would significantly undermine the economy. Perhaps we could, at least in our imagination, make the whole of the Philippines a special economic zone and define certain areas as for local investment only!
Mike can be contacted at email@example.com