Connecting the South China Sea and the Pacific Ocean: An Investment Model for Central Luzon Region

The Central Luzon Region is very vital to the national development of the Philippines. The region is strategic because it is just situated north of the Metropolitan Manila, the country’s seat of power and its commercial capital. The region’s contiguous land area lies between the South China Sea and the Pacific Ocean.

The Central Luzon growth region is also endowed with a historical railway transport infrastructure that can be revived to serve as the foundation and the catalyst for an integrated regional infrastructure model. The Central Luzon Region is the area where the export processing zone in the country started by way of the Bataan Export Processing Zone in Mariveles, Bataan, which was established in June 1969. After the US military bases in Subic and Clark were transferred to the Philippine Government in 1992, these military facilities have been converted into special economic zones. These historical milestones are vital to the present regional development in Central Luzon. These milestones are deeply taken into account in this regional investment opportunity agenda. On this basis, the existing transport, manufacturing, science and technology, and business infrastructure are taken into account for an integrated regional economic development model with an international dimension.

The goal of the regional investment opportunity agenda for the Central Luzon Region is to build its regional economy through a system of interconnected business models and transport infrastructure in between two international gateways, the Pacific Ocean in the eastern part of the Central Luzon Region and the China Sea in its western part. The strategies to be applied include putting the existing pieces together; ensuring a sustainable funding system; rejuvenation of existing facilities; employing integrated transport planning strategy for regional development; strengthening the role of existing governance models; and strengthening higher education, technical training, and research and development.

As the regional growth model for Central Luzon was pursued through the W-Corridor regional development pattern, new economic zones eventually emerged or still being planned. The W- Corridor starts in Masinloc in Zambales; passes through Subic, and goes down south to the Bataan Peninsula; then the inclined line goes up to Tarlac covering the Hacienda Luisita after passing through Clark Field; then goes down to Bulacan for the Jewelry Center in Mecauyan, and goes up again to Munoz Science City and the letter final ends in Aurora. Investment opportunities are identified in the business infrastructure within the W-Corridor.

Finally, the investment opportunity agenda’s recommended courses of action are outlined. The first step is a discussion to present the investment opportunity agenda for the Central Luzon to international business groups; second is to organize investment missions; third is explore the establishment of consulting company for project development and negotiation to be located in the Central Luzon region, and finally, to establish an investment fund to pool funding resources and to leverage other funding sources.

The identification of investment opportunities in the Central Luzon Region initiated from the outside provides an alternative approach in seeking direct foreign investment to the Philippines. Through regional approach and exploring the existing business infrastructure but in the context of an inclusive regional model, the needed international investment will able to explore opportunities that are mutually beneficial both to the Philippines and the other participating countries, with Korea and the US to be initially explored.

Putting the Existing Pieces Together

The development undertaking on the regional and local levels must be given a due course. The prevailing problems on the local and regional levels are largely rooted in socio-economic situations. Therefore, the corresponding economic development approaches are the most precise solutions, rather than the time consuming, divisive, and the outdated government planning and fund generation system. In fact, even the public-private-partnership (PPP) models did not work efficiently in the business institutions established. The real action must be direct undertakings in the region through the active participation of the local communities guided by the creative integration approach, and the most important, when the local parties involved are entrusted with the responsibilities and accountabilities.

The approach does not need the creation of new political structures that are just going to build additional layers in the structurally rigid bureaucracy. Furthermore, this old system of government structure solutions to economic development problems has been overridden by the advancement in technologies, information and communications technologies in particular. The existing political structure may not be perfect, but appropriate technologies can make it more responsive to the local and regional development demand. On this basis, new business models that are going to activate the existing systems must be operationalized.

When integrated, these business models implemented across the region build the Central Luzon economic agenda connecting the Pacific and China Sea gateways of Central Luzon. Through prudent integration of the existing physical, economic, legal, and government structure, which has never been explored efficiently, a new regional economic community will flourish. The existing laws that create those zones and institutions, including the creation of the Munoz Science City, provide the enabling environment for a regional development agenda without the need to change the political structure. Legislations that are snail pace in movement are not the appropriate solutions. The business models are going to activate the whole system.

The drive to regional integration must start right on the site by polishing first every business model. The existing business infrastructure like the export processing zones, the railway system infrastructure, and the road system, including the science community, must undergo reformation to be prepared for regional integration. Once these pieces are put together and cemented into one whole unit, it creates a model that can be a vital attraction for international investment and business collaboration, which becomes a model for other regions in the Philippines. The existing regional administration and local government administration in the region are enough because the initiative comes from the private sector in harmonious collaboration with the local government units, line agencies of the government, and the local communities. This dynamic process is the most appropriate because there are already existing infrastructure and business structures that are standing.

Ensuring a Sustainable Funding System

Many development projects fail because of the inadequacy and the unsustainability of funding. By inadequacy, it implies that the necessary amount of financial, technological, and human resources are not invested efficiently. On the other hand, even if the projects are initially successful but the absence of a sustainable funding mechanism for expansion, realignment, or adaptation to the existing situation, there are many projects that do not attain the desired results. Therefore,  the most important strategy is to ensure the availability of funding and the anchor investors first before embarking on the agenda. 

The traditional model of preparing first the technical design, meeting the parties involved, and only being allocated with uncertain funds are the main reasons why there are many projects that do not take off or could not be sustained. The agenda proposes two distinct approaches. First is the establishment of the regional investment fund, second is the establishment of the municipal bond that ensures the ownership and accountability of local government units, and the third one is the creation of the investment fund specifically tailored to the development authorities.

However, the fund is predominantly a privately initiated and privately managed. Government participation is only through its ownership right and to ensure government financial regulations are followed.

• Central Luzon Regional Investment Fund

The Establishment of the Central Luzon Regional Investment Fund, which is outlined in Chapter 6 of the book Business Models for Collective Governance (Eduardo Bacolod) through the establishment of the Rural Infrastructure Investment Fund is being proposed. The regional investment fund is a structured and organized mechanism for generating and managing the funds for development enterprises. 

• Establishment of Municipal Investment Fund

This funding facility has been initiated in a town in Sto. Domingo, Nueva Ecija, in the Central Luzon Region of the Philippines. In line with adopting an inclusive agricultural development program at the local level, the establishment of an investment fund introduces a more realistic and flexible approach to capital resources mobilization. The main idea is to build the funding structure first before the detailed development plans are prepared. 

The establishment of the Sto. Domingo Investment Fund is based on the book Business Models for Collective Governance written by this author. Chapter 2 of the book proposes an investment fund model that is inspired by the US Rural Infrastructure Opportunity Fund, which was launched on July 24, 2014. The US fund was established to serve as a new source of capital for infrastructure projects and to promote financing for infrastructure projects in the rural areas in the US.  The said fund in the US is designed to complement existing government loan and grant programs by making debt investments in a wide range of projects in America’s rural communities. 

The investment fund for Sto. Domingo, Nueva Ecija, a town that is strategically located in the Province of Nueva Ecija and in the Central Luzon Region is being proposed. The town is strategically located that connects the Central Luzon Region with the  Northern Luzon and Cagayan Valley Regions for trading purposes.  The investment, therefore, aims to build the principal funding structure for the  Sto Domingo Agro-Industrial Development Agenda. Its aim is to mobilize capital resources and at the same time to build a structure for different forms of business collaboration among various participants.

The Sto. Domingo Investment Fund starts through the initiative of an anchor investor, a development bank that provides the initial capital as the foundation as well as the catalyst of the investment fund. An international fund may also assume the role of the anchor investor. The fund is also a structure that recruits new sources of private capital to support infrastructure and other development projects. The fund also serves as a  co-leader for borrowers financing projects where the government’s program limits or resource constraints warrant the fund’s involvement. The fund can also be used as a private lending facility in support of projects that are capable of meeting market terms. Target investments supported by the fund include infrastructure, community development, research and development, and the priority development projects for consideration under the Sto. Domingo Agro-Industrial Development Agenda.

The fund is managed by a Fund Manager, which is a financial services company that has a proven track record. The Fund Manager is responsible for addressing the fund management and the legal compliance of the fund. The Fund Manager is also responsible for recruiting investors.

This investment fund model anchored to a municipality is merely to show the funding infrastructure to other local government units in the region that there are ways to generate funding without being dependent on the national government.

• Establishment of a Specialized Investment Fund

Virtually every business model deserves the creation of a special investment fund. However, the management of these facilities, which must be under private hands, must be carefully chosen. Furthermore, the operations must be transparent and closely regulated, not only by the government but the parties involved.

• Other Private Investment Fund

Other groups that are willing to establish their own investment fund specifically for the region are encouraged to participate. This approach provides diversity because investors or partners have their own priorities. Even investors coming from one country have different priorities. The emergence of different funds will be placed in proper operational perspective through the direction of the regional investment fund.

Rejuvenation of Existing Facilities 

In making old fruit-bearing trees productive, one strategy employed is rejuvenation through pruning for new buds and eventually productive twigs and branches to grow. This old and tested practice must be employed in the existing facilities that include the old export processing zones and the newly created economic zones. New ideas must flourish or the old and tested business models must be revived if still applicable. 

For instance, the Bataan Export Processing Zone, in spite of enabling laws, is no longer attractive for investment because of the lack of facilities. Its full makeover is necessary but it remains under government control. While it has an adequate area for expansion, it must be governed also by an aggressive business model that departs from the traditional highly government-controlled system.

Employing an Integrated Transport Planning Strategy for Regional Development 

The impact of transportation must be clearly understood in regional development. By understanding and measuring how a modernized transportation system will create investment opportunities, generate employment, open the country’s products for export, and practically provide movement for everybody at an efficient pace, the Central Luzon Region physical, economic, and social interconnections are appropriate. The transport planning approach relies on collecting critical data, developing performance measures and targets using GIS and other technologies, and integrating measurements into the project evaluation process to ensure the business models are well functionally integrated for the community, municipal, provincial, and regional development undertakings.  

Strengthening the Role of Existing Governance Models 

The flexibility of the local government units is ensured in the Local Government Code of 1990. However, the creation of a super regional body may no longer be relevant today because such authority is always prone to political interference. Perhaps an invisible structure model that isolates the individual components from political interference is ideal today because of the advancement in information technologies. In effect, a transparent system of corporate governance will be put in place. 

The local government units, in turn, focus more on its facilitative role. It ensures though that the communities they serve are protected and the facilities that operate within their administrative jurisdiction comply with existing laws. 

Strengthening Higher Education, Technical Training, and Research and Development  

Agricultural development and industrialization cannot proceed without supporting higher education, technical training, and education. The evolution of the university town of Munoz from a farm school established in 1907 during the first decade of the US colonial period is vital to this undertaking. The Science City of Munoz eventually becomes the nerve center of the development of the state university system in the region that is capable of training the required manpower. On the other hand, the university system becomes capable of providing research and development support for technical training, policy studies, and other research and development work.

The detailed investment opportunities will be presented in the next issue.

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