South African Business 2017 edition

SPECIAL FEATURE
Key goals behind the establishment of SEZs are:
• to encourage industries to develop in clusters,
leading to economies of scale, skills-sharing and
easier access by suppliers
• to create industrial infrastructure to promote
investment
• to promote cooperation between the public and
private sectors
• to use the zones as a launching pad for other plans
to further development
Apart from attracting foreign direct investment (FDI)
and boosting employment, SEZs can also play a role
in helping to add new sectors or sub-sectors to
an economy.
There is a cautionary aspect to the Swedish tale
in that the scheme only worked as long as subsidies
were available – but if SEZs are properly implemented
there is no reason why they should not become selfsupporting
in time.
South Africa is targeting a variety of sectors in
SEZs around the country, but there is a decided emphasis
on beneficiation, mainly of minerals but also
of agricultural products. There is a strong feeling that
South Africa can do much more with the product
of its soils – whether that be using manganese to
convert iron into steel or creating fruit juices out of
apples and pears.
Special Economic Zones are created in terms of the
Special Economic Zones Act of 2014 (Act 16 of 2014).
The act defines an SEZ as "geographically designated
areas of the country that are set aside for specifically
targeted economic activities, and supported through
special arrangements and systems that are often different
from those that apply to the rest of the country".
Lower corporate tax rates and duty-free imports are
among the advantages that accrue to investors.
SEZs come in different forms: South Africa has
several existing Industrial Development Zones (IDZs)
and a Free Trade Port (FTP). The Coega IDZ (Nelson
Mandela Bay Metropole) and the Dube TradePort at
the King Shaka International Airport outside Durban
are two well-known examples. Other licensed IDZs are
at Saldanha Bay, East London and Richards Bay. The
Dube TradePort aims to leverage its proximity to an
airport. In the same way, "aerotropolis" developments
are mooted for Ekurhuleni (OR Tambo airport) and
Cape Town International Airport.
Coega IDZ has recently attracted huge investments
from a variety of Chinese firms in the engineering,
solar manufacturing and automotive sectors.
The latest investment is from BAIC, who will
take a 65% stake in a multi-billion-rand joint venture
with the Industrial Development Corporation with
the intention of producing 100 000 vehicles. First
Automotive Works (FAW) has already established
a R600-million assembly plant in Zone 2 at Coega.
Richards Bay, apart from being the country's
main site for the export of coal, is also a registered
Industrial Development Zone and consequently is
in a position to attract investors in a range of sectors.
Recent developments at RBIDZ have seen an
investment in an oil and gas facility and it is hoped
that the ocean will yield finds of gas to provide
cheap feedstock.
Another type of SEZ is an Export Processing Zone
(EPZ). All of these interventions are intended to form
part of broader trade and investment plans such
as the National Development Plan (NDP) and the
Industrial Policy Action Plan (IPAP). The NDP is a
broad-strokes plan that seeks to coordinate development
in a range of sectors, and promotes ambitious
infrastructural projects.
South Africa's most recent IPAP has a manufacturing
focus, so beneficiation fits well into the idea of
diversifying and strengthening the country's ability
to make things.
In the context of the new and burgeoning
renewable energy sector, the state, through the
Department of Trade and Industry (dti), can pass
legislation that requires developers to increase the
level of local content on the solar panels or wind
turbines that are used. In this way, a totally new local
industry can be created; and an SEZ would be the
place to do it. Skills transfer is another stated aim
behind the SEZ programme.
Various incentives are available to investors in
an SEZ. These include tax breaks from the South
African Revenue Service (SARS), subsidised interest
rates from the Industrial Development Corporation
(IDC), subsidies for employees earning below a
certain level and subsidies for the training of the
workforce, incentives and grants from the dti, and
incentives available from national electricity utility
Eskom. Other benefits might include a building
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SOUTH AFRICAN BUSINESS 2017