BHEKA ZULU: Get into the zone

Special economic zones (SEZs) are vital for SA, providing tax-incentivised infrastructure facilities to particular sectors, enabling them to scale up and ultimately bolster the economy.

That SA’s economy is in the doldrums isn’t new: GDP is expected grow just 2.1% in 2022, a sharp drop from 4.91% recorded in 2021. Over the next three years Stats SA forecasts average annual growth of 1.8%. That’s not nearly enough to help the country add jobs and create opportunities for small, micro and medium-sized enterprises (SMMEs), which have been identified as the best means of closing the gap between the haves and have-nots.

SEZs offer an attractive proposition for a business to establish itself in an area that will see the local community benefit from its investment through the creation of jobs. These hubs are also a virtuous cycle: they enable one company to build relationships with others, thereby creating a chain of networking and skills-sharing opportunities that lead to more business and technical skills development.

Locally, we have a legislative framework that enables operators in SEZs to benefit from a lower corporate tax rate of 15% in addition to a 10% depreciation allowance for the cost of new buildings owned by companies that qualify. The tax rebate also applies to improvements to buildings.

Growth zones

The UN Conference on Trade & Development (UNCTAD), in its 2019 report on SEZs, reminds us that such zones, also known as freeports, date back many centuries to a time when traders moved cargo from ships to sell items inland or for re-export with almost no involvement from local authorities. They have since been replaced with modern establishments, generally next to seaports or hubs or, in SA’s case, close to an automotive production hub. The modern version first appeared in the 1960s and the concept took off in the 1980s.

SEZs have proven to be a safe port for businesses, adapting and changing as the environment shifted. UNCTAD points out that the 2008/2009 global financial crisis, which brought many economies to their knees, hardly resulted in a dip for the zones. Covid-19 and the resulting lockdowns to curb the spread of the virus have also proven to be a catalyst for internal production as the world continues to reel from a shortage of items that typically get transported to countries across the ocean, such as chips and timber. The report states that there are almost 5,400 SEZs around the world, about a fifth of which were established in the past five years, with another 500 to come in the next few years.

There are 11 designated SEZs in SA, located in Limpopo, KwaZulu-Natal, the Eastern Cape, Mpumalanga, the Free State and Gauteng. These zones draw international investment as, for example, automakers see the benefit of being in a region that allows them to have a closer geographical link to other companies in their supply chains. They also increase exports, help develop skills, reduce the logistical burden on roads and railways, and enhance the country’s industrial capabilities.

This is in keeping with the spirit of the Special Economic Zones Act, which states that SEZs must result in the creation of decent work and other economic and social benefits, including increased economic participation of smaller companies as well as transferring skills and technology.

Climate friendly

Industrial development is a natural, and positive, consequence of SEZs as other companies move closer to the action. This results in other developments such as housing and shopping malls, which require infrastructure in the form of water and electricity. Given our power shortage and the need for housing, this presents an opportunity for the private sector to invest in housing projects run off solar power, while also helping meet the UN sustainable development goal of net zero by 2050.

SEZs are a great opportunity for equitable growth. The Tshwane Automotive Special Economic Zone remains committed to being an attractive destination — not only for vehicle manufacturers, but also those who operate in vertical and horizontal sectors, supplying parts and other items to international companies that make cars, bakkies and trucks. It does this by providing state-of-the-art facilities that seamlessly connect everyone in the value chain.

Together, we can reach our vision of creating thousands of jobs and bringing more people into the employment fold.

• Dr Zulu is CEO of the Tshwane Automotive Special Economic Zone.