Special economic zones as shield

Article by Ariel Nepomuceno courtesy of Philippine Star Global.

The world is currently in economic turmoil. Inflation has worsened the daily burden of ordinary citizens who must survive their daily battle against the rising cost of basic living. Recession is lurking in the corner. Not unless the war in Ukraine immediately ends, the uncertainties will propel more hardships and confusions.

I already lost track of the roller-coaster fuel prices that, on average, seem to change every month. I have to assign a full-time researcher just to make sense out of these fuel price fluctuations and their corresponding impact on the economy.

Logistics companies, including those in the public transport sector, naturally would demand the necessary adjustments in their fares because of their higher operating costs. On the larger arena, energy producers are also in deep dilemma due to the unexpected increase in their fuel expenses that are not captured in their projections and financial assumptions. The horror stories continue, and the fear worsens before any clear sign of global recovery beacons.

Rely on our own strength. Within our control are some levers of growth and stability. One of which are the special economic zones (SEZs). If managed well, these exclusive jurisdictions and vibrant corporations will solidly help us in weathering the storm for the short- and long-terms.

The Philippines has at least 415 special economic zones. These are composed of manufacturing, IT Parks, tourism, agro-industrial and medical jurisdictions that enjoy the benefits and perks similar to other SEZs in other countries.

Along with our other economic low-hanging fruits such as tourism, agriculture and export of services, these special zones are magnets of growth and development. They spur economic activities and boost our exports of goods and services. They generate immediate employment and allow our citizens to bring home much-needed support for their families.

Domestic and foreign direct investments grow as a result of the sense of stability that these exclusive zones provide. The mitigation of risks encourages investors to locate in these insulated territories. On top of these benefits, SEZs also tag along their high-value and knowledge intensive assets that would strengthen our human resources for the future.

Support our special economic zones and create more. The liberalization of the usual business and trade regulations allow the enterprises inside these zones to prosper and grow. In the first place, the relaxation of the standard rules is the main incentive why business groups settle inside the economic zones in the whole world. This is not peculiar to our country only.

The success narrative of SEZs goes way back in the 1950’s in Ireland’s international airport. Then Dubai followed and other countries too. Right now, the top three hosts are the United States, France and Australia. There’s an estimated 3,000 SEZs globally that created at least 68 million jobs and $500-billion added value.

Of course, the best economic legend is the establishment of this capitalist experiment in the communist stronghold of China. With the inspiration and support of Deng Xiaoping, beginning in 1979, Shenzhen was converted from a sleepy fishing village of 300,000 people to one of the most advanced and largest cities of China with at least 17 million residents. SEZs have significantly helped reduce poverty in our giant neighbor.

There are at least 1,687 registered business enterprises in our local economic zones. These commercial entities have around P922-billion shareholders’ equity contributed. Roughly, this is almost six percent of the entire Philippine equities market.

There are detractors who criticize the contributions of SEZs to the economy. But for me, the best argument favoring further support for these zones is the P302.9-billion taxes collected from them in 2018, which is six times larger compared to the P51.7 billion in incentives granted to them for the same period. These taxes will go a long way for our much-needed government projects and operations.

Let the zones flourish and grow. The present administration of President Bongbong Marcos (BBM) must take a closer focus on enhancing the strength of our special economic zones. There’s so much untapped potential in this sector.

A clearer policy direction must be formulated and communicated to the prospective new locators. The merits of the Tax Incentives Transparency Act (TRAIN) must be fully explained and defended. Possible negative perceptions on TRAIN’s package one and two must be managed to continue attracting investors. Furthermore, BBM must soon appoint a permanent director general of the Philippine Economic Zone Authority (PEZA) who will lead in the roadshows and sustain the gains of our SEZs.

Again, if managed well, special economic zones can be our shield against downturns and challenges.

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