Unsinkable: Economic Development in Subic Bay

By Reyes, Alan | Harvard International Review, Spring 1998 | Go to article overview

Unsinkable: Economic Development in Subic Bay


Reyes, Alan, Harvard International Review


Subic Bay was once the site of one of the largest US naval bases in foreign territory. Today, as a significant economic center, the Subic Bay Metropolitan Authority (SBMA) promises genuine development for the Filipino economy. Long dubbed "the sick man of Asia," the Philippines is finally catching up to its booming neighbors to become a newly industrialized country, and the SBMA is emerging as one of the major catalysts of this transformation.

The transformation of Subic Bay from a naval base into a special economic zone was the vision of Richard Gordon, former mayor of nearby Olongapo City and now SBMA Chairman. In September 1991, the Philippine Senate rejected the renewal of the US Military Bases Agreement, forcing the closure of the Subic Bay naval base. Facing economic crisis, Mayor Gordon and thousands of Olongapo residents called for the Philippine Congress to support the redevelopment of the former naval installation, and in March 1992, Republic Act 7227 was passed, creating the Subic Bay Freeport and Special Economic Zone and establishing the Subic Bay Metropolitan Authority to administer the Freeport's development, with Gordon as its first chairman.

Since that time, the Freeport's economic progress has been substantial. The US departure from Subic Bay left some 47,000 Filipinos jobless, but now over 65,000 people work in the area. To date, at least 265 local and international companies have set up operations in the Freeport, pumping in over US$2 billion in investment. Enron Power Corporation, for example, which investmented US$150 million, uses Subic Bay as its Asia-Pacific base, and Acer recently opened an II-hectare production plant at the Subic Bay Industrial Park. Last November, Subic Bay hosted the fourth Asia Pacific Economic Cooperation (APEC) Leader's Summit, spotlighting the country's economic growth and development to the 18 heads of state who attended the forum, including US President Bill Clinton.

One of Subic Bay's main attractions is its strategic location. Situated about two hours away from the capital city of Manila, Subic Bay Freeport comprises a large, protected, natural harbor that is near international shipping lanes in the South China Sea. The area is at the center of the fast-growing economies of Asia; it is less than four hours away by plane from Hong Kong, Singapore, Taiwan, Japan, Malaysia, and Thailand. For this reason, Coastal Petroleum has chosen Subic Bay as its center for Asia-wide distribution of diesel, aviation fuel, and other refined oil products. Furthermore, Federal Express selected Subic Bay as the hub for its Asia One--"all of Asia in one day"--operations.

The departing US Navy left in place an infrastructure worth US$8 billion; the SBMA has preserved and developed it for the use of the Freeport's investors. The port itself has remained rougly unchanged and is capable of anchoring 600 commercial ships. The airfield has become a fullyfunctional international airport, and the Freeport also has its own independent power and water supply. Furthermore, the base's communication equipment has been incorporated into a telecommunications company jointly owned by AT&T, the Phillipine Long Distance Telephone Company, and the SBMA.

Subic Bay also possesses a highly skilled labor force, many of whom are former base workers. Long-accustomed to the presence of Americans, these workers speak English and are familiar with Western styles of business management. The SBMA has also been developing training centers to prepare residents for the influx of skilled jobs that is expected.

Business enterprises and individuals residing in the Freeport enjoy tax and duty exemptions on their capital machinery, imported raw materials, and other items for use within the Freeport. Freeport enterprises are also exempt from all local and national taxes, paying only a final tax of five percent of their adjusted gross income--as opposed to the standard 35 percent tax rate throughout the rest of the Philippines. …

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