Interview with Mr. Tereso O. Panga, Director General of Philippine Economic Zone Authority (PEZA)

25 Oct Interview with Mr. Tereso O. Panga, Director General of Philippine Economic Zone Authority (PEZA)

As one of Southeast Asia’s fastest-growing economies, the Philippines has surpassed the net foreign direct investment (FDI) inflows of Malaysia and Thailand in 2023. Which factors contributed to this achievement and how the Philippines differentiates itself from other Asian countries, particularly regarding FDI?

PEZA is a microcosm of the Philippine economy. The Philippines has the fastest-growing GDP among Association of SouthEast Asian Nations members and high GDP growth attracts more investments. PEZA is crucial in this, accounting for 17% of the GDP and over 50% of total annual exports. We play a major role in attracting FDI and our economic zones provide an ideal ecosystem for investors. According to Secretary Pascual, we are now fourth among the ASEAN-6 in FDI.

Our 423 economic zones and over 4,000 mostly export-oriented locator companies highlight our strength, particularly in electronics and IT. Many Fortune 500 industry leaders in manufacturing and IT are present here. The Corporate Recovery and Tax Incentives for Enterprises (CREATE) law provides generous fiscal incentives, longer than other ASEAN countries. For significant investments, the president can grant even longer special tax periods, up to 40 years. This surpasses Vietnam’s 30-year incentive to Samsung. Additionally, our competitive edge includes our young, productive Filipino labor force, which is highly valued by multinational companies. We are pioneers in economic zone development, starting in 1969. The US Department of State has twice highlighted PEZA for its regulatory transparency and ease of doing business, which significantly enhances our appeal to foreign investors.

Recently, a trade mission from the U.S. visited your headquarters. Could you share some highlights or key outcomes of that visit?

We had three major US delegations. One was led by Secretary Raimundo, the secretary of commerce; another by Secretary Blinken, secretary of state; and the most recent by Ambassador Murray, senior officialfor Asia-Pacific Economic Cooperation, who brought 800 companies. In a meeting with Ambassador Murray, PEZA was exclusively invited to discuss the Luzon Economic Corridor and prospects from the US Chips and Science Act. We highlighted that PEZA’s economic zones extend beyond Clark and Subic. The Philippine government is targeting $100 billion in investments across various sectors, including infrastructure, port modernization, agriculture, the electronic supply chain, digitalization and renewable energy.

PEZA registers billions of dollars of projects every year. What sectors are these investments focusedon, the benefits to the Philippine economy and the employment generated?

From January to June, we registered $800 million in investments, generating 25,000 direct jobs. This boosts the economy by creating new jobs and exports. Additionally, for every direct job in an economic zone, five indirect jobs are created, benefiting many families. Ecosystem development brings significant benefits to host local governments through increased revenues, social progress and technology transfer. Local players are integrated into the ecozone value chain. Our strongest sectors are electronics, IT, agriculture, electric vehicle transport and mineral ores, with the Philippines being the world’s fifth most mineralized country. We are pleased with the US Chips and Science Act, as it identifies the Philippines and Vietnam as key beneficiaries. With the US reducing reliance on Taiwan for chip manufacturing, countries like Singapore, Malaysia and the Philippines are poised to benefit.

The Ambassador Matt Murray identified the Philippines as third in the Electronics and Semiconductor Manufacturing Services (EMS-SMS) space. While Singapore and Malaysia lead in R&D and high tech, the Philippines excels in large-scale EMS and SMS manufacturing. Our value proposition includes offering the Philippines as a regional hub, benefiting from the vibrant ASEAN free trade agreement. We support American and EU companies by training Filipinos who can work abroad, especially in manufacturing and healthcare, enhancing their operations.

The Philippines’ mining sector was previously under a ban, which was recently lifted. The government’s current policy focuses on value-added processing of green ores within the country. We have the raw materials for electric vehicle batteries, being the second largest supplier of nickel, primarily to Japan and China. By increasing local processing, we can support the US in electric vehicle battery production and steel manufacturing. With resources like iron ore, limestone and coal, we can achieve full integration of steel manufacturing and car assembly. Additionally, we can process critical ores needed by the electronics industry.

In April 2024 you hosted your inaugural sustainability forum. How do you integrate sustainability into PEZA’s core operations and what were the key outcomes of your sustainability forum?

Even before sustainability became a buzzword, we implemented guidelines from a German grant on the Eco Industrial Development Framework. This ensures our economic zones adhere to clean, green production, following the World Bank’s model. Our zones are energy-efficient, low-carbon and embrace circularity through industrial symbiosis. This sustainability focus is a key factor for attracting companies, sometimes being a deal-breaker. Higher standards mean quality investments and benefits for local communities without compromising the environment. We also signed a sustainable reporting initiative with the Swiss government, measuring investment impacts based on the 17 sustainable development goals. This led to our first international environmental forum, introducing emerging, eco-friendly technologies to our locator companies, enhancing their efficiencies and supporting clean and green practices.

Regarding opportunities for US firms, which sectors would you like to see more investment in within the economic zones and what initiatives and benefits are available for US companies that invest in these zones?

The main drivers of the Philippine economy are services (60%), industry (30%) and agriculture (10%). PEZA supports these sectors with agro-processing zones for agriculture, manufacturing zones for industry and tourism and IT parks for services. While electronics and IT remain strong, we’re focusing on attracting high-value, high-profit products and R&D. Our new Innovation Science and Technology Parks foster collaboration between industries and academia to develop patents, prototypes and commercial products. Integrated steel manufacturing is a bright prospect as we aim to reduce steel imports. We are also looking into biopolymers to replace fossil-based plastics and exploring regenerative agriculture. Agro-based products like coconut husks can be developed into aviation fuel, biomass, particle boards and activated carbon, benefiting various industries including marine and automotive.

Another big incentive is our economic zones, which offer a captive concession for utilities like power, water and telecom. Despite high power costs, PEZA’s distributed energy system allows embedded utilities within the zones, avoiding transmission charges. We welcome power generation, renewable energy, waste-to-energy and district cooling companies. Multinationals find ready off-takers for their technology and receive incentives. In our zones, companies only deal with PEZA for all permits, bypassing local government units and other agencies. PEZA, under the Department of Trade and Industry, involves government officials from trade, local government, energy, economic planning and labor in approving projects. This whole-government approach streamlines processes and ensures comprehensive support.

What is your perspective on how the Filipino diaspora, particularly those in the US, can contribute to the country and how can they be encouraged to return and invest in the Philippines?

Despite the US’ near-shoring focus, the Philippines remains attractive due to ally-shoring. The US aims to spread its technologies among allied nations, ensuring no one is left behind. Through free trade agreements and the Indo-Pacific framework, American companies are encouraged to invest here. The Philippines offers an ideal hub in Asia Pacific, lowering operational costs while maintaining high standards. Our affinity with the US, shared language and similar constitutional framework, strengthen our appeal. Unlike Vietnam, which adapted its power system to China’s, we adhere to superior US and European standards.

Our workforce excels in high-tech activities. For example, Filipino engineers are crucial in R&D for Analog Devices and Texas Instruments. At CES in Las Vegas, Ed Machala, former Chairman of American Power Conversion, showcased Filipino talent with innovations like advanced 3D printing technology developed by a Filipino inventor who used liquid resin inspired by watching “Terminator.” These factors make the Philippines a compelling choice for American companies looking to de-risk their supply chains and establish a strong presence in Asia Pacific. Texas Instruments invested $2 billion in Clark, but chose to operate under PEZA due to our facilitation. Clark hosts thousands of PEZA-registered companies. We offer a 24/7 service with a digital, cashless and paperless transaction system. Our motto has always been ‘no red tape, only red carpet,’ a sentiment now echoed by the current president.

Do you have a final message for the millions of readers of USA Today about choosing the Philippines as their next business, tourism or investment destination?

Our president highlights that now is the best time to invest in the Philippines. PEZA supports this by providing prime locations and ecosystems within our economic zones. We help businesses grow by accessing both the domestic and expanding Asia-Pacific markets. With the Philippines moving towards upper-middle-income status, alongside countries like Thailand and Malaysia and projected to have a high GDP growth rate, we are confident in our ability to attract more investments. Investors will find their decision to invest here rewarding.