Emerging free trade zones in Southeast Asia

Published September 6, 2022, 7:54 AM

by J. Albert Gamboa

BATAM ISLAND, INDONESIA – Situated 20 kilometers off the southern coast of Singapore, this island belongs to the Riau Archipelago that lies along the Strait of Malacca, one of the busiest shipping lanes in the world. In 2009, the Indonesian government declared the Batam-Bintan-Karimun group of islands as the country’s only free trade zone (FTZ).

Since then, Batam has become an industrial boomtown and emerging transport hub. It is also part of the SIJORI Growth Triangle composed of Singapore, Johor in Malaysia, and the Riau Archipelago in Indonesia, as well as the Indonesia-Malaysia-Thailand Growth Triangle. As an FTZ, its facilities are exempted from some customs rules, including levies and taxes.

Tourism is another major industry in Batam, especially the northeastern coastal region that has a wide sandy beach and crystal-clear water. It is now the second gateway for foreign tourists going to Indonesia, next only to Denpasar in Bali.

Last year, Indonesian President Joko Widodo officially granted special economic zone (SEZ) status to a technopark and an aircraft maintenance facility in Batam to jumpstart its economic recovery amid the COVID-19 pandemic. These are the Nongsa Digital Park focusing on tourism activities and digital technology, and the Batam Aero Technic SEZ of the Lion Air Group that is dedicated to the maintenance, repair, and overhaul of passenger aircraft.

In the Philippines, the fastest growing FTZ is the Freeport Area of Bataan (FAB) located at the first-class municipality of Mariveles on the southern tip of the Bataan Peninsula some 175 kilometers northwest of Metro Manila.

Based on the number of investors and employment created, FAB has grown to become the third largest FTZ in our country, behind Clark Freeport and Subic Freeport. In terms of value, its exported products earned more than $830 million from 44 operating manufacturers that employed a workforce of approximately 40,000.

Republic Act No. 11453, which was enacted into law in 2019, enabled FAB to expand its operations beyond Mariveles to anywhere within the province of Bataan, except the Morong and Hermosa portions of Subic SEZ. As of June 2022, FAB has a total of 17 expansion areas spread across eight municipalities and the capital city of Balanga.

Once these areas are fully operational, at least 100,000 jobs are seen to be generated in the industrial, agricultural, and digital technology sectors. A more recent development involves the Government Arsenal in the municipality of Limay, which has been named the 17th expansion area. FAB will collaborate with the Department of National Defense in developing the arsenal’s 370-hectare property into a defense industrial estate.

FAB is likewise considered as an emerging hub for fintech and blockchain companies. DFNN Inc., a publicly-listed company, has created a sophisticated trading platform licensed to operate within FAB called GlobalTradeX. This will eventually transform FAB into an offshore financial center that embraces emerging fintech markets.

DFNN has recently partnered with Nautilus Data Technologies of California to build the Philippines’ first green data center inside FAB. Founded by Filipino-American tech industry leader Arnold Magcale, Nautilus is known for creating the world’s greenest and most innovative water-cooled data center design which has set new standards in energy efficiency, sustainability, and global scalability.

The newly-amended Public Service Act, otherwise known as Republic Act No. 11659, will pave the way for the liberalization of foreign ownership over public service utilities to operate in our domestic market. As an offshoot, Elon Musk-owned Space Exploration Technologies Corp. (SpaceX) has established a wholly-owned subsidiary, Starlink  Internet Services Philippines Inc. that would soon provide high-speed broadband services to Filipino customers. SpaceX is reportedly eyeing FAB as the site of its Starlink operations when DFNN and Nautilus’ pioneering green data center is in place.

J. Albert Gamboa is a Life Member of the Financial Executives Institute of the Philippines (FINEX). He is the Chairman of the FINEX Media Affairs Committee and the Editor-in-Chief of FINEX Digest. The opinion expressed herein does not necessarily reflect the views of these institutions and the Manila Bulletin. #FinexPhils  www.finex.org.ph