In many ways Central Luzon, or Region III, shares many characteristics with Calabarzon, the country’s industrial core. As well as being an affluent region, Central Luzon is the third-highest contributor to GDP, with Bulacan and Nueva Ecija ranking among the top-10 earning provinces according to the Commission on Audit’s 2015 “Annual Financial Report for LGUs”. With a population of 11.2m people in 2015, it is third most populated region nationally, and has the highest number of higher education institutions (HEIs) outside of Metro Manila, which is home to around 220 colleges and universities. Central Luzon’s strength lies in its unique advantages, namely that it is strategically located in the middle of the Luzon island, it is distant from any major fault lines, and is protected from typhoons by the surrounding Zambales and Sierra Madre mountain ranges. It enjoys a thriving local economy, and is well connected through existing and future road networks to the rest of the country. All these factors have raised the region’s profile as an investment destination and set its course on a path towards industrialisation.
After outpacing the national growth rate in 2014 with a 9.3% increase in gross regional domestic product (GRDP), Central Luzon’s economy slowed to 5.3% in 2015, according to the Philippine Statistics Authority (PSA). Although lower, this growth rate brought the region’s output to P704.3bn ($14.9bn) in 2015, or P35bn ($740.4m) more than the year before. Whereas industry was the top-performing sector in 2014, expanding by 15.9%, in 2015 this eased to 6.7%, largely due to sluggish global demand.
Despite this trend, the manufacturing-driven industrial sector became the largest contributor to the region’s GRDP in 2015, accounting for 23%, and made Central Luzon one of the three predominantly industrial regions, along with the Cordillera Administrative Region and Calabarzon. According to the Board of Investment, multiple high-value investments, particularly in the Clark and Subic Bay special economic and freeport zones, translated into approximately P56.5bn ($1.2bn) worth of approved projects in 2016, making Central Luzon the third-largest beneficiary of investment pledges among all regions that year.
Services likewise expanded by 5.7% in 2015, up from 4.1% a year before, as Manila’s business process outsourcing (BPO) frontier seeks to expand northward to capitalise on the more than 60,000 new graduates from HEIs in Central Luzon each year. With a workforce comparable to Metro Manila, and given the ongoing congestion problems in the capital, BPO locators are increasingly more willing to take advantage of locations and labour pools further afield. With the inclusion of Metro Clark in the 97th spot of the top-100 BPO destinations named by strategic research firm Tholons, more BPO companies are encouraged to expand or set up operations in the region.
From a former US Air Force base abandoned in 1991, the Clark Freeport Zone (CFZ), managed by the Clark Development Corporation (CDC) and Clark International Airport Corporation (CIAC), has transformed itself into Central Luzon’s key economic hub and employment generator. Located in Pampanga province, bordered by Mabalacat and Angeles City, Clark boasts 4400 ha of modern infrastructure facilities, and an attractive fiscal and non-fiscal incentives regime that has positioned it as the highest-earning special economic zone (SEZ) in the country. Clark ended 2016 having signed 71 lease agreements committing around $1.02bn of investment over the next 10 years – nearly triple the amount it recorded in 2015. By year-end 2016 Clark hosted 895 locators, a 6% jump from the previous year, close to double the 464 locators it had in 2010, and employed over 90,000 workers.
Clark’s locator profile has evolved over the years from manufacturing and electronics, to commercial centres, tourism-oriented facilities and BPOs. By the end of 2016 roughly 32% of the firms operating out of Clark were commercial businesses, 24% were ICT firms and 23% were engaged in the services sector. The most pressing challenge facing Clark is the limited availability of land for leasing, as the majority of its 2100 ha and the remaining 2300 ha of land in the freeport zone is already under long-term lease contracts.
Consequently, the CDC now prioritises proposals from prospective investors that have a higher multiplier effect; for instance, BPO, which can provide large employment in limited space.
Unlike other SEZs, the CFZ has successfully developed its non-industrial assets and encouraged investment to enter areas that improve its liveability and enable the expansion of tourism opportunities. Developments such as Global Gateway Clark, the region’s new central business district, are changing the landscape of the CFZ through its commercial office and retail offerings. More recently approved leases, for example, were executed for the construction of the third Marriott hotel in the Philippines, as well as the Hilton Clark Sun Valley Resort within the CFZ.
To ensure the long-term viability of Central Luzon as a decongestion area for Metro Manila, Clark’s parent company, the Bases Conversion and Development Authority (BCDA) is also undertaking the development of the Clark Green City (CGC) project within the Clark SEZ. Based on a master plan approved by the National Economic and Development Authority (NEDA) in 2014, CGC will consist of 9450 ha of green and natural disaster-resistent metropolitan area.
Although the master plan is still being revised, phase one of CGC is already under way after real estate developer Filinvest Land was awarded the P160m ($3.4m) bid in early 2016 to develop 288 ha jointly with the BCDA. This phase includes construction of an industrial zone and a central business district. Once fully developed, CGC is projected to be home to some 1.12m residents and employ 800,000 workers, making it a major component of the government’s decentralisation efforts. Similarly, the aforementioned Global Gateway Clark project, being developed by Global Gateway Development Corporation under a 50-year lease with the CIAC, is a 177-ha, mixed-use estate that seeks to further cement the region’s position as an economic centre by adding 5.8m sq metres of floor space and employing 500,000 workers upon completion.
The major transportation asset for Central and Northern Luzon, and Clark in particular, is the Clark International Airport (CIA), a 4.2m-passenger capacity facility within the Clark Freeport Zone. With an estimated catchment area of 23m, infrastructure projects in the pipeline to strengthen connectivity between Metro Manila and the north, and the viability of the facility to serve as a complementary force to Metro Manila’s congested Ninoy Aquino International Airport, the full utilisation and development of the airport has become a priority of the current administration. Historically, underutilisation of the CIA has been a persistent challenge, largely due to the limited amount of routes being served from the airport. However, this trend has reversed as the airport grew to accommodate 11 airlines with 224 flights per week in 2016, a significant increase from the 8 airlines and 110 weekly flights it served just a year earlier. The original plan by Aéroport de Paris Ingenierie (ADPI), prepared in 2015, included the construction of a P15bn ($317.3m) passenger terminal in an effort to increase capacity to 80m passengers per year by 2032. Although initially deemed too large, the master plan has now become the government’s roadmap, the beginnings of which are already being implemented by the current administration.
The CIAC is now in the process of bidding out the redesign of the facility, which aims to build a new airport terminal to accommodate a total of 8m travellers within the next four years. This capacity can then potentially be further extended depending on the growth and size of the market. The expansion was originally supposed to be undertaken by CIAC using a total of P2bn ($42.3m) squired under the General Appropriations Acts of both 2015 and 2016; the new plan will now award the contract for the new design in 2017, and then bid out the airport’s development via public-private partnership. The project has already garnered significant investment, with JG Summit and Filinvest Development having offered a P186.6bn ($3.9bn) unsolicited proposal to expand the facility’s capacity to 36m passengers by 2020, largely based on the original ADPI master plan.
Connectivity to SEZs is important to ensure efficient movement of goods, services and people. Clark is accessible within 45 minutes by sea via the Port of Subic Bay, which is another major asset of Central Luzon. With a capacity of 600,000 twenty-foot equivalent units and a deeper berth than the Port of Manila, it is a highly attractive gateway. By land Central Luzon is accessible via the North Luzon Expressway (NLEX), the Subic-Clark-Tarlac Expressway and the Tarlac-Pangasinan-La Union Expressway, which connect Clark to Metro Manila, the Subic Bay Freeport Area and the northern provinces of Luzon, respectively.
In addition to these three major tollways, the accessibility of Clark will be further improved after the NLEXSouth Luzon Expressway Connector Road Project, which was awarded in September 2016 and will be undertaken by Metro Pacific Tollways. The connector road consists of an 8-km elevated highway connecting Caloocan to Manila. This project will reduce travel time from the SLEX to NLEX from two hours to 20 minutes and provide direct connectivity from Central Luzon to the southern provinces upon its completion by 2020. A second connector toll road backed by Philippine conglomerate San Miguel is also under construction.
Riding The Rails
In addition to toll roads, two major railway projects that will positively impact Central Luzon’s connectivity have been highlighted for development. The first is a $2.88bn, 38-km proposed railway from Tutuban in Manila to Malolos in Bulacan province, which is part of President Rodrigo Duterte’s priority infrastructure projects. The bidding for the construction of the rail system is slated for 2018, and the project will be constructed using a record $2.42bn in official development assistance from Japan.