Fatgiyah Bardien | Senior Manager for Incentives | Cova Advisory | mail me |
You don’t need to be a Nobel economics laureate to know that with the world’s highest rate of unemployment, South Africa needs to attract a lot more job-creating investments.
One of the Department of Trade, Industry and Competition’s (DTIC’s) flagship programmes is the Special Economic Zones (SEZs), a new iteration of what we used to call Industrial Development Zones (IDZs).
But are the SEZs that special? Do they deliver on the promise of offering the right bunch of carrots to potential investors, ensuring they will choose South Africa over all the other territories which also work hard to attract new factories, which in turn will bring in new jobs?
The red tape
After a few decades of setting up first IDZs and now the SEZs, the results have been mixed. Some, like the Dube TradePort near Durban’s King Shaka Airport, have proved to be highly successful. Some others much less so.
As the SEZs have had varying degrees of success, we need to understand what the secret of success is in those SEZs which are leading the way.
Dube is regarded internationally as leading the charge in SA. The World Free & Special Economic Zones Federation (FEMOZA) announced in 2019 that the Dube TradePort Special Economic Zone (SEZ) was the winner of its ‘Best Practice in Free & Special Economic Zones’ award.
A key factor behind this impressive performance is that a determined effort has been made to ensure that when a potential investor knocks on the door, there are standard operating procedures to provide a one-stop-shop.
From the application for the investment incentives to sweeten the deal to liaison with the municipality to ensure the right infrastructure is in place, to fast-tracking Home Affairs’ immigration procedures, it is all available in one place, and the SEZ team can help an investor to bulldoze through the red tape.
What makes it all so special is the magic that happens within the SEZs when all three spheres of government work together to secure investment. The can assist with local regulations on building codes, provincial regulations on transport and the environment and national regulations on immigration, foreign exchange controls, trade matters and so on.
A responsive investment environment
By bringing all three spheres of government into a collaborative venture the SEZ creates a much more responsive investment environment than in your run of the mill industrial park.
Although a series of new SEZs is in the pipeline, and this programme is regarded as an essential element of SA’s investment drive, the overall standard of the SEZs must be lifted, as so many years of hard work, and so many billions of public funds, have been invested in the programme.
The underperformers may need an overhaul and must move forward by making what they do – and how they do it – more transparent. The DTIC already has this management model for the SEZs – with the partnership between the local municipality, the province, and the national government.
Considering the strain on fiscus – a strain on the tax base of all three strands of government – it might be wise to also consider a more intense partnership with the private sector, ensuring that each SEZ has the right infrastructure and management.
We need to get more and better results with the current funding. Do all our SEZs, in terms of design and how they are run, compare to international practice, where public-private partnerships (PPPs) have been shown to work well?
Addressing the industrial imbalance between provinces
An indication of the potential which can be unleashed is how the DTIC, the Gauteng Province, the City of Tshwane and the Ford Motor Company are all working together in the Tshwane Automotive SEZ (TASEZ).
It is understandable that with President Cyril Ramaphosa leading a high-profile and glitzy investment drive, that the government wants more and more SEZs – especially where these can help to address the industrial imbalance between provinces.
Before we roll out more, however, we need to batten down what we already have. We need to run cost-benefit analyses on the return for the fiscus on the current 11 SEZs. There will always be limited resources for funding SEZs, especially as the DTIC has seen its departmental budget squeezed severely in successive annual budgets.
There does seem to be an appetite, from my experience, from firms wishing to move into SEZs, and the model has been shown to work successfully from Dubai to China, to India.
In conclusion
The big carrot for these zones is the combination of benefits: the incentives available in terms of investment support and reduced tax, their location near ports, customs-controlled areas, and the benefits of the wavering of customs duties.
However, this is too important a programme to be left to chance. The DTIC has a duty not only to the President but also to the taxpayers of South Africa to take a closer look at the SEZs, especially those which are falling behind.
Every new investor will bring new jobs, new skills, and will help to grow our exports. The SEZs can play a vital role in attracting more investors. And it is time for them all to shape up.
