Country Business Reports interviews and articles by Discovery Reports

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About 400km northeast of Manila, excitement has been building up for investors from Asia and the rest of the world. While the booming Philippine economy offers many opportunities from tourism to modern business services, it is unusual to find all of them in one place. Such is the case of the Cagayan Economic Zone Authority (CEZA). The free-port area offers a wide spectrum of business undertakings from windswept beach resorts, world-class golf courses and modern township projects to manufacturing, online gaming and financial technology services for cryptocurrency and bitcoin companies.

“Businesses will find CEZA a truly friendly area for their investments. We are easy to do business with and are transparent. There is no corruption here and our deadline for doing things is always yesterday,” says Raul Lambino, administrator and CEO of CEZA. “We have become a favourite economic zone of investors coming from mainland China, Hong Kong, Taiwan, Japan and South Korea.”

Also the presidential adviser on four regions covering 22 provinces north of Manila, Lambino took over CEZA when Rodrigo Duterte assumed the country’s presidency in 2016. The new free-port administrator led a turnaround in the only special economic zone in northern Luzon. CEZA, for instance, has put in place stringent rules and regulations for the protection of everyone associated with online gaming operations while developing appropriate infrastructure for businesses.

Spanning about 54,119 hectares of urban, suburban and agro-industrial lands for prime development, the facility covers the entire municipality of Santa Ana and the islands of Fuga, Barit and Mabbag. It is strategically located at the northeastern tip of the Philippines, surrounded by the waters of Balintang channel, the South China Sea and the Pacific Ocean, and is at the crossroads of international shipping routes between the west coast of North America, the Far East and Southeast Asia. Less than an hour’s flight from Kaohsiung and Hong Kong, CEZA operates as a separate customs territory similar to Hong Kong, Singapore, Labuan in Malaysia and Hamburg in Germany.

Crypto Valley of Asia

The centrepiece of CEZA’s development is the establishment of the Crypto Valley of Asia (CVA), which is expected to catapult the economic zone into a technological garden for the world’s next wave of groundbreaking financial technology innovations. In partnership with global industry leaders, CEZA will be the first economic zone in Asia to regulate, license and propagate offshore financial technology solutions for companies and offshore virtual currency exchanges. This will be complemented by providing infrastructure support to enterprises producing financial products relating to blockchain, cryptocurrency, payment solutions, cloud computing, big data, artificial intelligence, robo-advice and other financial technology solutions.

“Encouraged by Silicon Valley in San Francisco, we are making CEZA a sandbox for the development of these disruptive technologies, serving as a laboratory for interested parties to experiment on these new dimensions of business enterprise,” Lambino says. “We hope to see young boys and girls in their millennial attire of shorts, shirts and slippers working without limits and enhancing their intellectual prowess to come up with innovative business undertakings.”

CEZA [is] a sandbox for the development of disruptive technologies, serving as a laboratory for interested parties to experiment on these new dimensions of business enterprise  – Raul Lambino, administrator and CEO

Partner investors have committed to pour in at least US$10 million into the CVA project this year, committing to develop a US$200 million financial technology hub in the next five years. In consultation with the University of the Philippines College of Law and experts from Switzerland, Slovenia, Singapore and Japan, CEZA has issued the necessary rules and regulations to protect all stakeholders. The economic zone has issued about 25 licences to companies from Hong Kong, Taiwan, Malaysia, Thailand, Japan and Slovenia, and is evaluating about 100 more applicants.

The free-port zone has similarly signed an agreement with South Korean conglomerate Hanwha to develop Blockchain University with the help of leading educational institutions from the Philippines and Asia. To complement the upcoming institution, CEZA has inaugurated a new building that will serve as a training centre for future talent at the financial hub.

Further support will come from China-Asean Information Harbor, which has shown interest to participate in the development of an information centre. Part of this infrastructure will be a submarine cable connecting Taiwan and CEZA.

Secluded enclave for tourists

The free-port facility is also evolving into a major tourist destination given its pristine natural resources. Considered by CNN Travel as one of the 10 most beautiful islands in the world, Palaui island in Cagayan has hosted the television show Survivor twice. CEZA has a combined white sand beachfront of 70km, which is longer than Australia’s Gold Coast. Tourists also flock to CEZA for its fresh seafood and to participate in its annual events, which include the CEZA-Eastern Hawaii National Motocross Championship, CEZA Film Festival and CEZA-First Cagayan Beach Volleyball International Santa Ana Open. The economic zone will be introducing a cuisine festival this year to commemorate its 23rd anniversary. Further bolstering its tourism sector is the construction of CEZA’s first five-star hotel this year before developing a convention centre next year.

The zone has also signed a memorandum of understanding with Singaporean developer LongRunn Capital to construct City Polaris, a US$4.4 billion dream vacation city complete with a beach resort similar to Boracay and a theme park patterned after Universal Studios and Disneyland. Spanning 500 hectares, the modern seaside township property will feature a 36-hole, world-class golf course. City Polaris will also incorporate green technologies into its master plan designed by Italian firm Mercurio Design Lab.

The owners of the Fuga group of islands, meanwhile, have expressed plans to develop an exclusive haven for the rich and famous. To be designed by a top local developer, the island retreat will feature a casino and other luxurious amenities. CEZA is also eyeing a similar high-end exclusive tourist enclave with a Dubai-based company while pursuing the development of a site for an international shooting club on a 300-hectare reserve inside the facility. Partner investors will put up a 2km shooting range and have already ordered the necessary equipment for the project.

In such a short time, we were able to transform CEZA from a public agency dependent on government subsidy to one that is self-sufficient Raul Lambino, administrator and CEO

In addition to these tourism projects, CEZA is talking with partners from Israel and Malaysia on setting up a mother-and-child centre in Palaui island. With more Asian families increasingly able to afford such medical wellness programmes, the facility will offer expectant mothers five-star accommodation where they can deliver their child while enjoying the island’s pristine atmosphere with their families.

Upgraded manufacturing facilities

The free-port facility is giving the manufacturing segment a similar focus. CEZA offers one of the most generous tax incentives of only 5 per cent of gross income in lieu of all local and national taxes. The zone is also beefing up the support infrastructure locators require. Port San Vicente is undergoing modernisation to be able to serve roll-on/roll-off vessels and cruise ships while Port Irene will undergo expansion to accommodate bulk and container cargo. CEZA expects to get budget approval from the national government this year for the Port Irene project and expects construction to be completed late next year.

The free-port facility will also construct new warehouses and has also allotted 300 million Philippine pesos (HK$45 million) to start the development of an expanded commercial centre. To be located in an 11-hectare property, CEZA will rent out the units to locators. LongRunn Capital, which is CEZA’s partner in the City Polaris township project, is also collaborating with the economic zone on its airport modernisation programme. The company has already completed plans for extending the runway from 2.1 to 3.5km, including a world-class terminal that will accommodate about 1 million passengers. LongRunn Capital has also agreed to finance a 60km six-lane expressway from the airport to City Polaris.

All these projects are focused on accommodating the influx of industries into CEZA, which includes a paper recycling company and a textile manufacturer from China set to locate into the facility this year. From Japan, potential investors include a supplier of lithium manganese batteries for advanced electric vehicles, a tyre manufacturer and another company involved in shipbuilding.

“All the innovations and reforms we have introduced into the zone, together with the priority we have given to infrastructure development, have contributed to the increase in the zone’s income,” Lambino says. “In such a short time, we were able to transform CEZA from a public agency dependent on government subsidy to one that is self-sufficient. Before I took over, we were 80 million pesos in the red. Now, we are earning more than 800 million pesos.”

Lambino’s vision, however, extends beyond CEZA as he is looking to replicate the facility’s success in Cagayan to other areas in northern Luzon such as Clark and Subic.

“I hope we would be able to generate more interest with all these innovative approaches of enticing investors to come to the Philippines. I am not just doing this for CEZA because whatever we do here will surely benefit the whole country,” Lambino says. “We want CEZA to be a haven for young Filipino workers. We want to see more of our young talented Filipinos staying in the country instead of going out to work elsewhere. We want them to be proud to stay and work here and find CEZA as a place where they belong.”

https://www.scmp.com/country-reports/country-reports/topics/philippines-business-report-2019/article/3013776/cezas