The Philippines taught Vietnam how to build economic zones. Now, Vietnam is building what the world buys

For nearly three decades, a homegrown veteran of the Philippine Economic Zone Authority (PEZA) has watched the country’s industrial ambitions evolve — and watched a former student in the region race ahead.

The Philippines helped Vietnam learn from its experience in economic-zone development in the 1990s, when Manila was still seen as a regional model for attracting export-oriented manufacturing.

Today, Vietnam has overtaken the Philippines as a major manufacturing hub, producing goods for global markets while Filipino workers and managers are among those helping operate its factories.

The contrast underscores a longstanding problem in the Philippine economy: the country imports far more goods than it exports, leaving it heavily dependent on foreign products, capital and energy.

Tereso Panga, Director General of PEZA, who has spent nearly 29 years as agency insider, says the country now faces a "rare" to reverse that trajectory.

Factories are moving out of China as companies diversify their supply chains.

US investment in the region has surged, while Chinese companies are also looking for production bases in countries viewed as strategically "neutral".

The Philippines, he argues, cannot afford to miss the opening.

“We need to accelerate all our moves,” Panga told Breaking Ground, stressing the need to make the country more competitive before investors choose rival destinations.

"What is important is that we really need to take advantage of it...to make sure that we don’t pass up this opportunity," he added.

PEZA was created in 1995 (Republic Act No. 7916, "Special Economic Zone Act"), building on the country's earlier experience with export-processing zones dating to 1969.

Panga joined PEZA in 1998 as a planning officer and became part of the agency's early efforts to establish a nationwide economic-zone network.

It was also the era of President Fidel V. Ramos, whose administration aggressively promoted the Philippines to international investors.

The strategy was straightforward: create ready-to-use industrial locations where foreign companies could manufacture goods for export, while offering incentives and a more streamlined regulatory environment.

The Philippines was responding to a rapidly changing global economy, in which countries were entering free-trade agreements and competing to become manufacturing bases.

Economic zones were designed to give investors infrastructure, fiscal incentives and easier access to government services.

But the Philippines eventually lost ground to countries such as Vietnam.

That reversal is particularly striking because the Philippines was once sufficiently advanced in economic-zone development to share its experience with Vietnam.

Today, Vietnam is a major manufacturing powerhouse for electronics, machinery, garments and consumer goods, while the Philippines remains much more dependent on imports.

How did it happen?

The PEZA veteran describes the country's trade imbalance in simple terms: roughly four shipments enter the Philippines for every shipment that leaves as an export.

That imbalance matters because exports generate foreign-exchange earnings and support manufacturing, employment and investment.

A country that continually imports finished products without developing enough domestic manufacturing capacity loses opportunities to create value at home.

The problem becomes even more acute when the imports are essential commodities such as fuel and energy.

The Philippines' dependence on imported energy can put pressure on the peso and contribute to inflation when international commodity prices surge.

The long-term answer, the official argues, is greater domestic production — including renewable energy — combined with manufacturing that creates more value inside the country.

The Philippines provides one of the world's clearest examples of the value-addition problem.

The country is a major producer of nickel, a critical mineral for batteries and the energy transition. Yet much of its mineral output has historically been exported for processing elsewhere.

The result is a familiar pattern: the Philippines exports the raw material and other countries capture much of the higher-value processing.

The same problem extends beyond nickel.

Copper can leave the country as ore or concentrate and return as higher-value products such as cables and components. Agricultural commodities can be exported as raw materials and processed abroad before returning to the Philippine market.

PEZA's mandate is intended to address precisely that gap.

The agency says companies locating inside its economic zones must undertake genuine manufacturing and value-adding activities rather than simply extract and export raw materials.

The goal is to move progressively from extraction toward processing and finished products.

Indonesia's experience illustrates what a more aggressive value-addition strategy can accomplish.

The country restricted exports of certain unprocessed mineral ores in an effort to force more processing and investment to take place domestically.

That helped attract companies involved in mineral processing and battery-related industries.

PEZA says it is pursuing a similar direction by encouraging resource-based economic zones, particularly in areas with agricultural or mineral resources.

The objective is to create industrial ecosystems close to where the raw materials are produced.

That could be especially significant for the Philippines' ambitions in electric vehicles and batteries.

The Philippines has nickel, copper and other minerals needed for the energy-transition supply chain. What it lacks is enough domestic processing and manufacturing capacity to capture a larger share of the value.

Here's a curious fact about Philippine politics: Any drive towards domestic processing drive, including renewable power generation, gets a strong pushback by environmentalists and "indigenous people" advocates.

To many Filipinos, PEZA can sound like another government bureaucracy.

Its proponents see it differently.

Economic zones are essentially controlled business environments designed to make companies more competitive by reducing regulatory friction, providing infrastructure and offering fiscal incentives.

PEZA says it has 436 registered economic zones, covering manufacturing, information technology, agro-industrial processing, tourism and other activities.

About 95% are privately developed, according to the agency.

For investors, the attraction is not simply tax incentives.

It is speed and predictability.

PEZA can provide a single-window environment for many permits and regulatory requirements, allowing companies to avoid navigating multiple layers of national and local bureaucracy.

The agency says it has also moved heavily into electronic, cashless and paperless transactions.

It says projects can be approved "within" days and shipments can move through the system much faster than under conventional procedures.

For multinational companies deciding between the Philippines, Vietnam, Thailand, Indonesia or Malaysia, those details can determine where billions of dollars are invested.

The global manufacturing map is changing again.

Companies are reassessing their dependence on China, creating opportunities for countries that can provide alternative production bases.

The Philippines has several advantages: a large English-speaking workforce, an established electronics industry, abundant natural resources and a long history of working with multinational manufacturers.

But those advantages compete against infrastructure gaps, high power costs, regulatory complexity and the country's regional rivals.

The PEZA veteran believes the Philippines has a narrow window to act.

The recently enacted CREATE MORE law is intended to make the country's fiscal incentives more competitive and expand opportunities for both foreign and domestic investors.

That is important because PEZA is no longer focused exclusively on multinational export manufacturers.

Filipino companies can also locate inside economic zones and, under the newer framework, benefit from incentives even when producing primarily for the domestic market.

That creates another potential weapon against the trade deficit: import substitution.

Instead of importing finished products, Filipino companies could manufacture them locally inside economic zones.

The result would be fewer imports, more domestic production, more jobs and greater value captured inside the Philippines.

The challenge is ultimately bigger than PEZA. Economic zones cannot solve the country's trade deficit by themselves.

The Philippines also needs reliable and affordable electricity, efficient ports, better roads and railways, faster customs procedures, skilled workers, deeper local supply chains and policies that encourage manufacturers to invest for the long term.

But PEZA can provide the industrial platform where those pieces come together.

The agency's vision is particularly relevant for resource-rich regions such as Mindanao, where agricultural products and minerals could feed processing industries rather than simply leave the country as raw commodities.

Mindanao has dozens of special economic zones and industrial estates regulated under PEZA that handle manufacturing, processing, and exports. These export-oriented hubs across different regions include Phividec Industrial Estate, Anflo Industrial Estate (AIE), the Metro Davao Economic Zone, and the Kamanga Agro-Industrial Economic Zone in Maasim, Sarangani.

For coconut-producing areas, that means processing more coconut into food, chemicals and other higher-value products locally.

For mining regions, it means processing nickel, copper and other minerals domestically.

For the electronics sector, it means moving higher up the value chain from assembly toward components, advanced manufacturing and eventually more sophisticated products.

The irony is hard to miss: Three decades ago, the Philippines was helping Vietnam learn how to build economic zones.

Today, Vietnam is one of the countries the Philippines is trying to catch.

The difference is not simply geography or wages. Factories leaving China will not automatically come to the Philippines. Investors will choose among competing countries — and Vietnam, Thailand, Malaysia and Indonesia are already moving aggressively.

For PEZA, the challenge after nearly 30 years is not merely to attract more companies.

It is to help transform the Philippines from a country that exports minerals and agricultural commodities and imports finished goods into one that processes, manufactures and exports more of what the world actually buys.

That is the economic race the Philippines once helped Vietnam enter. Now Manila has to prove it can run the race again.