On the state of affairs at Camp John Hay Part III: Special Economic Zones

Property rights and management and development of estates were the topics in Part II of this series.  The argument is continued here

  • Special Economic Zone.  Presidential Proclamation 420 series 1994, in the time of former President Fidel V Ramos, designated 288.1 hectares in Camp John Hay as a special economic zone.  Free trade zones were introduced in developing countries by way of free market and export oriented growth policies of the IMF and the World Bank with the aim of jumpstarting economic growth to level up with international and global markets.  SEZs, according to the WB, are established with the aim of achieving one or more of the following four policy objectives
    • To attract foreign direct investment (FDI)
    • To serve as “pressure valves” to alleviate large-scale unemployment
    • In support of a wider economic reform strategy
    • As experimental laboratories for the application of new policies and approaches (before applying these to the rest of the economy)

Further

Economic zone programs that are successful in contributing to long-term development go beyond the static benefits of attracting investment and generating employment. They leverage these static benefits for the creation of dynamic economic benefits. Ultimately, this means contributing to structural transformation of the economy, including diversification, upgrades, and increased openness.

JHSEZ falls under the large scale SEZ model that combines residential and multi-use commercial and industrial activity. The main export good of JHSEZ is tourism.

Achievement of the above policy objectives in general has had a mixed record of success according to the WB, although interestingly,

A number of examples…also illustrate the catalytic role zones play in processes of economic growth and adjustment processes. For example, many of the zones established in the 1970s and 1980s in East Asia’s “tiger economies” (e.g. Singapore) were critical in facilitating their industrial development and upgrading processes. Similarly, the later adoption of the model by China (e.g. Shenzhen), which launched SEZs on a scale not seen previously, provided a platform for attracting FDI and not only supported the development of China’s export oriented manufacturing sector, but also served as a catalyst for sweeping economic reforms that later were extended throughout the country.

What this says is

It is not the existence of an SEZ regime, of a master plan, or even of a fully built-out infrastructure that will make the difference in attracting investment, creating jobs, and generating spillovers to the local economy. Rather, it is the relevance of the SEZ programs in the specific context in which they are introduced, and the effectiveness with which they are designed, implemented, and managed on an ongoing basis, that will determine success or failure.

another observation about SEZs—that is, their incubation period. Even the biggest SEZ success stories like China and Malaysia started slowly and took at least 5 to 10 years before they began to build momentum. From a policy perspective, this means that governments need to be patient and to provide consistent support to zone programs over long time periods, a particular challenge in countries whose political cycles are rather shorter.

Translating this lesson into a management strategy for SEZs begs the address of the following concerns

How to ensure that economic zones are sustainable from an institutional, social, and environmental perspective

How to ensure that zones are economically sustainable and deliver positive externalities, including facilitating upgrading and structural transformation and catalyzing economic reforms

How to make economic zones successful in attracting firms that create jobs

Establishment of an enabling environment in other words.

JHSEZ, seen against this framework, has since after the US Government turned over the property to the Philippine Government (through the agency of BCDA), failed to attain it’s full potential as an instrument of growth in Baguio City and the region (Cordilleras) as well as, along with Poro Point, in North Luzon (originally of the North Luzon Growth Quadrangle). JHSEZ remains quagmired in the politics of whoever chairs the BCDA. And many years since after the Camp’s turn over, the Cordilleras remain in the top five poorest regions in the country.  Otherwise the zone should now have been a showcase of world class tourism.

Like the fate of laws and policies of the land, the zone suffered from inconsistent implementation and follow through (i.e. monitoring and evaluation). Laws and policies were implemented according to the mood and interpretation of politicians and public officers.  This has put a brake on the Camp becoming a hub for innovation and competitiveness, defeating the purpose of SEZs.

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