FIKILE MAJOLA: Special economic zones can boost jobs and assist in economic recovery
On October 15 President Cyril Ramaphosa presented SA’s economic reconstruction and recovery plan to a joint sitting of parliament. Before the Covid-19 global pandemic the SA economy was already in decline, with countless South Africans experiencing severe hardship and suffering. The impact of the pandemic has worsened this by causing a decline in economic activities through all sectors of the economy, thereby increasing the number of people living below the poverty line.
The objectives of the plan centre on mitigating the effects of the pandemic through the creation of employment through infrastructure investments, re-industrialisation through growing small businesses, unlocking of investments, defeating crime and corruption and enhancing the capability of the state. Following the overall vision of the National Development Plan, at the centre of the reconstruction and recovery plan lies the creation of sustainable employment though infrastructure, localisation and industrialisation.
These targets are assimilated within the special economic zone (SEZ) programme implemented by the department of trade, industry & competition. The SEZs provide a broad platform to achieve these goals.
The primary objective of the programme, which is directly aligned to the recovery plan, is to expedite the creation of an industrial complex, targeting investments and industries in the manufacturing sector and tradable services; develop infrastructure to support industrial activities; attract foreign and domestic investments; provide a physical location for investments, promote the beneficiation of mineral and natural resources; promote integration with local industry and increasing value-added production; promote regional development; create decent employment and other economic and social benefits in the region in promoting small, micro and medium enterprises and co-operatives, and promoting skills and technology transfer; and generate new and innovative economic activities.
These objectives can be successfully met by our SEZs because of their nature. As they are specifically defined geographic areas in the country, they contain a level of focused institutional capacity and committed state action, as contained in the Special Economic Zones Act No 16 of 2014 and various regulations and guidelines. This ability and capacity can allow zones to overcome structural challenges more efficiently, particularly in terms of attracting foreign direct investment, diversifying local economies and more concerted stakeholder collaboration.
Our SEZs can drive the recovery process by attracting foreign direct investment that directly create employment. They do so by taking into consideration an investor’s preferences, then tailoring investment packages to meet as many requirements as possible. SEZs are capable of overcoming a number of challenges in the general investment climate.
Zones offer an attractive business environment within a demarcated physical space, which is not inhibited by the challenges faced by the general economy. SA’s economic zones offer investors a safe zone to operate from, where infrastructure and serviced land within the zone are secure, complemented by a suite of fiscal incentives for qualifying companies. This includes a 15% corporate tax rate, VAT and custom duty rebates.
SEZ operators are steadfastly creating a business environment with links to the local economy, and through the provision of a relevant skills base from which investors can draw. Reliable electricity and water supply is an additional drawcard, which cannot be guaranteed by the broader investment climate. Overall, SEZs play a huge role in minimising the total risks faced by an international investor into SA and the continent.
East London, Coega and Dube TradePort are leading in their efforts to support local small, micro and medium enterprises (SMMEs). They have robustly engaged with local businesses, facilitating their entry into the zones as suppliers. Procurement processes have also been amended to ease the entry of local businesses into their supply chains, such as in the Saldanha Bay SEZ. Local SMMEs in turn have become facilitators in the creation of a broader entrepreneurial culture. The economic zones are also developing incubator programmes to assist local SMMEs in creating direct linkages with investors in the SEZs.
In Saldanha Bay there has been efforts to build capacity through vocational and technical training that will assist the local workforce in building quality skills for the oil and gas sector. More advanced SEZs such as East London, Coega and Dube TradePort have attracted skills and knowledge through their multinational investors, providing an opportunity to put domestic industries on a higher path of the learning curve, learn the latest management, business and trade practices, and increase the pool of skilled labour in the country.
SEZs are one of the central policy tools to stimulate industrialisation. As much as our zones are multisectoral, there is evidence of targeted sectors such as the Tshwane automotive zone, the developing pharmaceutical cluster at the Dube TradePort and oil & gas in Saldanha Bay. SEZs such as Dube TradePort are gradually developing industrial clusters around key trade infrastructure and the local labour market. Our multisector zones on the other hand provide an opportunity to not only diversify our exports but initiate the movement towards a service based economy.
Infrastructure projects in the SEZs have had enormous implications for local economies. Most of our SEZs have a strong pipeline of infrastructure projects that require a concerted effort by all stakeholders to unlock. Zone operators have also become proficient in managing large-scale infrastructure projects and so are capable of fast tracking processes that can delay project implementation in the general economy. With the support of national government, a concerted effort is being made by SEZs to increase the number of operational investments by unlocking the 99 secured but non-operational investments.
The Tshwane automotive SEZ has had to fast track construction in the zone as some of its secured investors are ready to locate. The zone now has 12 secured but non-operational SEZs, with an estimated rand investment value in excess of R2.8bn. Having entered a full implementation phase, the zone is building 12 factories and bulk infrastructure simultaneously. The SEZ will create about 6,000 jobs during construction and about 2,500 direct jobs during the operational phase. In addition, the SEZ has set aside 47% of the project for SMMEs, which is more than R1.4bn.
Up to the end of the first quarter of the 2020/2021 financial year, the combined cumulative rand value for the SEZ programme’s secured but non-operational investments was R43.965bn. In addition, our operational zones today are integrated to a much greater extent with their host regions. They provide the necessary platform to support and develop local communities, which become the source of labour and skills for the zone firms. This can result in more jobs on offer, a wider variety of skills required and higher earnings, which reduce poverty and inequality.
When they import specialised skills, this often results in a skills transfer to the host region. Small and medium enterprises are also integrated into the procurement chains of the zone firms. Furthermore, SEZs are used to stimulate regional development, and can be the basis of modern urban development.
• Majola is deputy minister of trade, industry & competition.
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