Special Report: SUBIC BAY, PHILIPPINES
A Port Prospers in Civvies
Visitors to Richard Gordon's office can't miss the photo of him fishing with Philippine President Fidel V. Ramos. The caption underneath says, "Catching big fish at Subic."
It's a pretty good description of what the chief of Subic Bay Freeport is doing these days. Federal Express, AT&T, Enron, and Acer are just a few of the companies that Gordon has pulled into the former U.S. Navy base. Since the Philippines launched the free-trade zone in 1992, pushing out American troops, it has lured more than $1 billion, becoming one of the hottest investment sites in Asia. "Subic has acquired a life of its own," says the 50-year-old former mayor of Olongapo, the town just outside Subic's gates.
Foreign investors see a lot that pleases them. They rave about the port's deep, natural harbor, its modern infrastructure, and the large pool of skilled, English-speaking laborers who work for a minimum wage of about $6 a day. That's far lower than in Singapore and Hong Kong. Subic's office space, land prices, and cost of living are a bargain, too, when compared with those rivals (table). Other attractions include unlimited profit repatriation and low corporate taxes.
But the biggest draw of all is the ability to cut through the torturous red tape of Southeast Asia. Subic allows unlimited duty-free imports and a hassle-free export system. "It's really very impressive, and as fast as Taiwan," says Kenny Wang, deputy general manager of Taiwan computer giant Acer Inc.'s plant in Subic.
How fast? Two weeks after Acer opened its $24 million factory in a former cold-storage facility, it exported 3,200 computer motherboards. Now, the world's No.7 computer maker is planning to build complete PCs and open a global repair center at the port. Acer's Subic unit will have annual sales of $200 million in 1996, its first full year of operation. If all goes according to plan, in five years it will employ more than 19,000 people and record annual sales of at least $1 billion.
GAMBLING, TOO. Such dynamism is evident everywhere. In a converted Subic warehouse, a Taiwanese company pumps gut 180,000 pairs of Reebok shoes a month. In September, FedEx will begin flying daily from a former Navy airstrip up the road--part of a $100 million project to turn Subic into its regional hub. Another Taiwanese group is putting up a 750-acre industrial park for companies that will make everything from garments to food.
Meanwhile, Malaysian gaming company Metroplex Berhad is doing a booming casino business, and its hotel is booked solid on weekends for months in advance. As more resorts go up, Asian tourists are expected to rush to enjoy Subic's clean air, blue water, and recreational activities that range from golf to hiking through virgin rain forest.
Taken together, the investments are not only reviving the port but giving a boost to a growing economic recovery in the Philippines, which is trying to erase its image as the deadbeat of Asia. When the free port opened in 1992, the country's gross national product was growing at 1% a year. This year, growth is expected to reach 6%. Foreign investment in the Philippine stock market has jumped 322%, to $2.4 billion last year.
To be sure, growth on this scale has created some problems. Subic's supply of suitable buildings for factories is running low, as is the pool of skilled labor. Many of the 42,000 base workers who lost their jobs when the Americans left were trained for ship and port operations, not sewing shoes and waiting on tables. It can also be difficult to get around. The road leading to Manila is winding and narrow. During the four-month wet season, it's often choked with volcanic ash from the 1991 Mt. Pinatubo eruption. The drive to the capital some 50 miles away takes at least three hours--longer if it rains.
The port is trying to tackle these difficulties. A new company called First Philippine Infrastructure Development Corp. is building a $21 million highway that will connect the base to a planned $500 million Subic-Manila expressway. The project is expected to be completed in 1998. The base authority has launched programs to retrain prospective employees. And Gordon also says skilled workers from surrounding areas have begun gravitating to the base for jobs.
While handling Subic's growth is challenging, the task seems to pale compared with the turnaround Gordon and others undertook after the U.S. Navy left its largest overseas military installation in November, 1992. The Philippines officially launched the free port the very day U.S. troops left. Gordon galvanized local support by convincing townspeople their fate was tied to the base. Some 8,000 volunteers toiled to keep the base in working order, guard its facilities from would-be looters, and show potential investors around.
HEARD IT BEFORE. After the World Bank pitched in with a development plan and a $40 million loan for infrastructure development, Gordan began circling the globe. He peddled the plan to skeptical investors already tired of hearing about "economic miracles" in the Philippines that never quite took off.
Two early investments helped. Enron Corp. in Houston sank $115 million into a joint venture with Rizal Commercial Banking Corp. and House of Investments, two companies owned by Alfonso Yuchengco, Philippine ambassador to Japan. The venture runs the base's 16-megawatt power plant and a new 116-megawatt facility. And AT&T entered a venture to install and run an international communications gateway.
Regional politics also played a role. Taiwan was looking for an investment site to hedge the money it was pouring into mainland China. After an intense lobbying effort by the Ramos administration, many Taiwanese found their alternative at Subic. Taiwan's official development bank lent $23.5 million to help develop an industrial park. Now, Taiwanese companies make up about one-third of the 181 with committed investments in Subic. Gordon is hoping Hong Kong's reversion to China in 1997 will help woo companies, too.
Subic will get a major boost in November, 1996, when it hosts the Asia-Pacific Economic Cooperation forum. The Philippines hopes to showcase the port's development during the meeting of leaders from the 18 APEC countries, including the U.S., Japan, Canada, and Australia. The summit may raise Gordon's personal profile, too. While he says that developing Subic is his first priority, he is often mentioned as a possible candidate in the 1998 presidential elections. If he keeps reeling in the companies at the port, he may soon have bigger fish to fry.By Michael DiCicco in Subic Bay Freeport