The Folly of the Philippines’ PEZA System

I just did some desultory reading about our mediocre, anti-economics PEZA (Philippine Economic Zone Authority) system to understand how it works.

After scanning a few PEZA articles/primers, I came up with the following simplified conclusion: PEZA is simply a micro-centrally planned environment that hypocritically manufactures investors’ needs and concerns (when in fact they don’t actually need anything from the government) and deceptively, strategically conceals the country’s real economic problems from the Filipino people.

Exhibit #1: “All Industrial Economic Zones are manned by a PEZA officer and staff to immediately attend to stakeholders’ needs and concerns. Information Technology companies are attended to by Head Office.”

That looks like an economic prison to me. PEZA deceptively creates an artificial demand for government help and intervention. In most freer economies like Hong Kong and Singapore, investors only need to comply with documentary papers, pay certain fees or taxes, and deal with construction permits and property registration. 

What PEZA is trying to tell foreign investors is: “OK. You can invest here but you need us.”

Knowing how red tape and bureaucracy work in the Failippines, PEZA can attract:

  • Bribery
  • Generous gift-giving, aka bribery
  • Padrino system
  • Bogus or not-really-for-export-companies just to take advantage of “benefits”
  • Corruption, of course

So far, I’ve learned that to be eligible (TAKE NOTE: applicants need to pass the eligibility tests), investors must comply with at least two MAJOR requirements (correct me if I’m wrong here):

  • Regulatory requirement for certain investment activities: the 70% requirement for– a) export manufacturing (exportation of at least 70% of production), and b) IT or BPO (70% of total revenues is derived from clients abroad).

Take note that (a, or export manufacturing) and (b, IT and BPO) are DESIGNED to protect local cronies and oligarchs against direct competition.

PEZA MESSAGE: “You can invest here but your target consumers (70%) must be foreigners, not Filipinos.” 

  • Locations or so-called free market zones. All PEZA activities are covered by this requirement. For example, there are designated 68 IT centers, 6 agro-industrial economic zones, 25 manufacturing-economic zones, and 9 tourism economic zones.

Both Tourism and Medical Tourism target foreign tourists as primary clientele.

PEZA MESSAGE: “You can freely target foreign tourists, but when it comes to Filipinos– FUCK OFF!”. 

I said above that PEZA “strategically conceals the country’s real economic problems from the Filipino people”. A lot of so-called economists from UP and PIDS, including top politicians like Miriam Defensor-Santiago and other protectionists, have been saying we no longer need to change the charter to fully allow foreign investors to compete with Filipinos because we already have PEZA. Other third-rate protectionists even claim: “The Philippines is an open economy” (perhaps because of our PEZA laws).

BUT we don’t need PEZA or free economic zones. What we need is Charter Change and economic freedom.

The truth is, China, Singapore, Hong Kong, Japan and others don’t have their own versions of our PEZA laws or system because their economies are fully open to foreign investors.

Our PEZA system is a mockery of economics and reason.

  • Basic Facts About PEZA System

Operating Economic Zones (277)

17 Agro-Industrial Economic Zone
178 IT Parks/Centers
65 Manufacturing Economic Zone
2 Medical Tourism Parks/Centers
15 Tourism Economic Zone

Activities Eligible for PEZA Registration and Incentives (Click on the link)

2 thoughts on “The Folly of the Philippines’ PEZA System

  1. Pingback: Why Hong Kong, U.S. and Other Freer Economies Can Justifiably Ban/Restrict Free-Riding RP in the Name of Reciprocity | vincenton

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