The Philippines has a liberalized economy allowing 100% foreign investment in almost all sectors. Through the years, the capital markets have been strengthened and the financial, shipping and telecommunications sectors deregulated.
In 1995, the Special Economic Zone Act was enacted to encourage economic growth through foreign investments. The Philippines designated areas around the country into special economic zones, or ECOZONES, for development into agricultural, industrial commercial and tourist and recreational complexes.
Each Ecozone has been developed as an independent, self-regulating community. It administers its own economic, financial, industrial and tourism development with minimum or no assistance from the national government. It also provides adequate facilities to establish linkages with surrounding communities and other entities within the country.
The Special Economic Zone Act simplified import, export and other financial and operational procedures. Areas designated as Ecozones may contain an Industrial Estate, an Export Processing Zone (EPZ), a Free Trade Zone, a Tourist and Recreational Center, or an Information Technology Park, or a combination of these developments.
Industrial estates are developed in areas where basic infrastructure is already in place. Water, electricity, telecommunication and other utilities are already available for immediate connection. The road network and related facilities inside and outside the industrial park are already developed. Proper zoning (industrial, residential, commercial and recreational areas) in the park has been determined, with the industrial lots simply waiting for the construction of the facility required by the locator firm. Moreover, the locator company is given assistance in securing local licenses and permits necessary for the construction and operation of the business.
Industrial estates are normally divided into a Customs Bonded and a Non-Customs Bonded Area. If the locator company is import dependent, it is advised to locate within the Customs Boded Area. Doing so, its imported (raw materials, supplies and equipment) will not be subjected to customs procedures at the port but rather at the company’s premises inside the industrial park.
The Export Processing Zones (EPZ) are special industrial estates whose locator companies are mainly export-oriented. Incentives for businesses in EPZs include tax and duty-free importation of capital equipment, raw materials and spare parts. The government has designated four EPZs: Bataan, Cavite, Baguio City and Mactan Island in Central Philippines. There are about 250 registered companies in the EPZs, a number of which are involved in the manufacture and export of electronics products, garments, rubber goods, fabricated metals and plastics, electrical machinery, transport equipment and industrial chemicals.
Free Trade Zones are areas near ports of entry, such as seaports and airports. Imported goods may be unloaded, repacked, sorted and manipulated without being subjected to import duties. Investors in the zones enjoy tax and duty free exemptions on imported raw materials, supplies, capital equipment and other items for consumption within the Freeport area.
The Tourist and Recreational Centers contain establishments that cater to both local and foreign visitors of the Ecozones. Such businesses include hotels, resorts, apartments, sports and recreational facilities.
Information Technology Parks (IT Parks) are locations for service-type IT projects with no manufacturing operations. They serve as locations for the activities in the fields of software development for business, e-commerce, education and entertainment, content development for multimedia or Internet purposes, hardware design, knowledge and computer-based support activities, and research and development services.
Doing business in the Philippines is relatively simple. Foreign business entities may establish a Corporation that requires a minimum of five and an maximum of 15 people, the majority of whom are Philippine residents, with capital supplied by shareholders. A corporation, whether wholly foreign-owned or with local participation, is the form most commonly used by foreign investors. Businesses may also establish a Branch that is formed and managed by a foreign parent company, that supplies the capital. Foreign firms may also enter into a Partnership involving two or more people, with liability limited to each of their capital contributions. In partnerships, the general partners have exclusive control and management of the business but their liability is unlimited. Foreign investors may also form a Joint Venture corporation or partnership, with liability governed by the same rules as a partnership or corporation. A joint venture is usually a temporary arrangement for a particular project. Finally, business executives may choose to operate a Sole Proprietorship by supplying all the capital and assuming unlimited liability.
The government agency responsible for the establishment, operation and management of government-run Ecozones is the Philippine Economic Zone Authority (PEZA). Other private enterprises may also register with PEZA for the establishment of Ecozones. Once recognized by PEZA, the businesses located in privately-managed Ecozones would be entitled to all the incentives available including preferential tax treatment.
The Philippines has over 160 registered privately managed Ecozones, and four government-owned EPZs. Among the big multi-national companies that are currently located in these Ecozones are FedEx, AOL, Ford, NEC, Sanyo, Philips, Texas Instruments, INTEL, UNIDEN, Toshiba, Isuzu, Fujitsu, Samsung, Pentax, Hitachi and Fairchild.
Some of these Ecozones maintain, for potential investors, a large pool of qualified work force, who are equipped with the required management and technical skills, proficiency in English, excellent education, good motivation and conscientious observance of professional ethics in the workplace. An average of one thousand highly productive workers with excellent employment records is hired every month. For all theses skills and good work ethic, wage rates are highly competitive compared to those of other countries.
The country continues to enjoy increased foreign investments as more and more companies in the Ecozones have infused additional capital into their businesses. Favorable international agreements and incentives granted to the country by several developed countries have made investing in Ecozones and exporting from the Philippines very profitable. Additionally, the Philippines is a member of ASEAN (Association of Southeast Asian Nations), and with the ASEAN Free Trade Area, businesses could take advantage of a potential market of more than 500 Million in countries in the Southeast Asian region.
The Philippine government also offers additional incentives to interested businesses that are located in the Ecozones. Foreign investors are allowed to repatriate the entire proceeds of the liquidation of the investments in the currency in which the investment was originally made and at the exchange rate at the time of repatriation. They have the right to payment of interests and principal on foreign loans and contacts. Properties represented by the investments or of the enterprises are exempted from expropriation by the government except in extraordinary circumstances for public use or in the interest of national welfare and defense.
More information on these Ecozones are available in the websites of the PEZA (http://www.peza.gov.ph), Board of Investments (http://www.boi.gov.ph) and the Embassy of the Republic of the Philippines in Ottawa, Canada (this site).
With the profitability of companies in these special investment area, and the open and liberalized economy of the Philippines, these Ecozones have become the places for foreign investments that lead to cooperation between the Philippines and its international partners.
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