Why the Philippines needs more free port zones — and a change of heart

The Philippines is a unique nation.

It has more than 116.8 million people inhabiting a huge land area (300,000 km2), 10 times bigger than Belgium, spread across 7,641 islands.

The country has nearly four times the population of Canada, living across vastly different geographic and developmental challenges. 

More importantly, the country has a staggering 36,289-km coastline, over 15 times longer then Germany's due to its vast archipelago of thousands of islands.

Filipinos are gritty, resilient people.

By the millions, they pack their bags to work in faraway shores and support loved ones back home.

They face every disaster — natural or manmade — with resilience.

Despite their collective strength, the culture of governance is currently weak, owing to a deep-rooted culture of corruption, in part due to overcentrsalisation.

The country's economy, marked by underinvestment in agriculture, infrastructure and key industries, is beset by institutionalised dishonesty and "resbak" — impunity — toward whistleblowers.

Its laws are designed to keep the primacy of Manila in every major policy and economic decision-making, and protect the influential.

Its mines of critical minerals are ringfenced by the mighty.

State projects are eighed down by kickbacks and "tongpats", estimated at up to $20 billion in 2025.

Business rules, and high electricity rates discourage investments; a well-structured financial support for innovation is absent.

Much work needs to be done on these fronts.

Despite being an archipelago, the Philippines has relatively few major "freeport" zones (standalone territories with unique tax and customs regulations).

Mindset issue

It's a cultural baggage: the country's legal and economic systems are historically land-based, overcentralised.

It relies on a token distribution of "ecozones", hundreds of scattered, inland Special Economic Zones for trade.

The result: a highly developed Calabarzon and the National Capital Region, and a dearth of opportunity in the rest, with the rare exception of the special economic zone in Zamboanga, in the country's "far" southwest.

The Zamboanga City Special Economic Zone and Freeport, created by Republic Act 7903 of 1995, is seen as an economic driver in the Zamboanga Peninsula.

Currently, it has 20 "locators" operating across a variety of industries, ranging from industrial manufacturing and agriculture to business process outsourcing (BPO).

The freeport zone continues to expand its footprint with ongoing development of the West Corporate Centre to attract additional IT-BPM and financial locators, alongside the massive San Ramon Newport project.

The scarcity of standalone freeports versus standard ecozones comes down to a land-based economic philosophy mindset.

Historically, the Philippine government has prioritised land development, land transport, and centralised economic growth, despite its vast archipelagic territory.

Its shipbuilding industry is severely underdeveloped, ironic for an archipelago. Even more ironic: most of the 400 or so Philippine "ecozones" are inland.

The Philippines has only five legislated freeport zones with broad customs and fiscal privileges: Subic Bay, Clark, Bataan, Poro Point (La Union), and Zamboanga City.

Here's the rub: Four of these are located on Luzon island, and are clustered relatively close to Metro Manila.

This leaves much of the Visayas and Mindanao (50 million combined population, as per 2024 Census of Population) without comparable freeport-scale investment gateways.

This has created resentments among the "outliers".

By contrast, the Philippine Economic Zone Authority (PEZA) administers more than 400 operating economic zones (ecozones) nationwide.

These are typically smaller industrial estates, IT parks, manufacturing parks and logistics hubs designed to disperse investments.

Still, most of them are clustered around or near Manila.

A sense of proportion

Elsewhere in Asia, Singapore has built its success around world-class free trade and bonded logistics facilities integrated with one of the world's busiest ports and airports.

Hong Kong functions as an almost entirely free-port economy with minimal customs barriers and efficient trade facilitation.

Malaysia has likewise established multiple Free Industrial Zones and Free Commercial Zones, including those in Penang, Port Klang and Johor, to attract export-oriented manufacturing and regional distribution hubs.

The concentration of the country's principal freeports contrasts sharply with international competitors.

Dubai, whose land area is considerably smaller than the Philippine province of Camarines Sur, has developed more than 30 specialised free zones, each serving industries such as finance, logistics, aviation, healthcare, media, technology and maritime services.

Across the UAE there are more than 40 free zones competing to attract multinational firms, global headquarters and advanced manufacturing.

Filipinos, in turn, flock to these freeport-driven economies in search of work, taking jobs as domestic helpers or skilled tradespeople.

Simplifying customs

The World Bank has long cited Singapore, Hong Kong and Malaysia as examples of economies that successfully used free zones and simplified customs regimes to integrate into global supply chains.

International experience shows that well-managed freeports can generate substantial economic benefits.

They help attract foreign direct investment, create export-oriented industries, expand employment, facilitate technology transfer, improve logistics efficiency and strengthen a country's position in regional and global supply chains.

In the Philippines, PEZA reports that its economic zones account for a significant share of merchandise exports while employing well over a million workers.

This demonstrates how investment incentives can support industrial development and joc creation when combined with reliable infrastructure and regulatory stability.

Freeport and special economic zones do present important challenges.

Governments must balance generous tax incentives against potential foregone revenues, ensure that incentives produce genuine new investment rather than simply relocating existing businesses, prevent regulatory arbitrage and smuggling.

There's a need to keep a strong customs oversight, and avoid creating isolated enclaves that generate limited economic spillovers for surrounding communities.

How freeport zones could succeed

International institutions have emphasised that free zones succeed only when they are supported by efficient governance, transparent regulation, modern infrastructure, skilled labour and strong links to the domestic economy.

Tax incentives alone rarely compensate for unreliable (and expensive) electricity, weak transport networks or bureaucratic inefficiency.

In the Philippine setting, the establishment of new legislated freeports generally requires congressional approval because these zones are granted broader customs, taxation and administrative powers than ordinary PEZA economic zones.

Freeports: To limit or expand?

Instead of building massive new freeports to spread opportunity across the archipelago, the current thinking is to limit such hubs, innovation drivers and job mulitipliers, for fear of limiting Manila's authority.

Policymakers have often argued that limiting the number of freeports helps protect the national "tax base" and maintain oversight over customs exemptions.

Critics, however, contend that the concentration of major freeports in Luzon has constrained regional industrialisation and contributed to the continued concentration of investment, infrastructure and economic activity around Metro Manila.

Should the pivot to a new thinking? Must it expand the number of freeports to accelerate development elsewhere?

The answer lies elswhere: it would depend not only on granting fiscal incentives but also on parallel investments in ports, airports, highways, power, water, digital connectivity and improving governance.