by Tim Acker

Special economic zones – new opportunities?

South African companies and the global market

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Local companies face a constant struggle to compete against cheap imports from other emerging markets, for example China and India. These imports are often backed by incentives by the governments of the originating countries. Meanwhile, South African economic incentives such as industrial development zones (IDZs) have done little to increase competitiveness and 
assist business. 

One of the ways in which the government has sought to make industries more competitive and stimulate employment is through IDZs. These are specific-purpose industrial estates that provide infrastructure as well as assistance with import and export activities. 

There are currently only three IDZs operational in South Africa: in Coega, Port Elizabeth and Richards Bay. It is clear that IDZs are especially aimed at stimulating growth through exports. 

Internationally, variations of IDZs are often referred to as special economic zones (SEZs). These have been extremely successful in promoting manufacturing in countries such as South Korea, Taiwan and Mexico. For example, SEZs in China employ about 50 million people. These SEZs often offer large benefits to companies in terms of tax incentives, infrastructure or concessions regarding regulations. 

The success of these countries, along with a 2011 visit to China, inspired the South African government to overhaul the current IDZ landscape and replace it with a SEZ system modelled on international success stories. 

The Department of Trade and Industry (dti) announced that R2.3-billion will be allocated toward this in the next three years.

The SEZ legislation is still a work in progress, but it is widely expected to have wider powers and be more beneficial to companies. SEZs are expected to be more focused and to provide ad hoc benefits as required. The dti plans to work with stakeholders in provinces to identify potential for SEZs. 

Industrialisation outside Cape Town, Johannesburg, Durban-Pietermaritzburg, East London and Port Elizabeth is planned. This will include niche markets and existing competitive advantages that can be cultivated. For example, Saldanha Steel in the Western Cape has been identified as a unique area that could benefit from specific incentives (although, due to the timeline, this will most likely technically still be 
an IDZ. 

The new system will not be restricted to export-orientated businesses, but will include different economic zone categories, for example science parks.
The dti will most likely be given powers to determine the benefits provided by each SEZ, rather than having a blanket for all SEZs. 

This will enable them to tailor to the specific needs of an industry or area. Specific types of benefits that are expected include support for employment and training expenses, a lower corporate tax rate, and minimising red tape. The dti has announced, however, that there will be no relaxation of South Africa’s stringent labour laws. 

The SEZ policy and bill are expected to be passed later this year and will most likely not replace existing IDZs. 

It appears that the new SEZs could potentially offer significant benefits. Companies would do well to involve themselves as stakeholders in the consultation process with the dti and keep up to date of new SEZs and benefits being offered. 

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Issue 72