FIKILE MAJOLA: SEZs have enjoyed a high degree of success

In Chinua Achebe’s Things Fall Apart, the main character’s uncompromising position in favour of tradition, despite the world changing around him, leads to his sad demise. Stubbornly clinging to past failures, rather than learning from them, means there is no space for future successes.

In his recent article, William Gumede drew conclusions on the state’s Special Economic Zones (SEZs) programme based largely on the past, conveniently ignoring the changes around him (“Dysfunctional SEZs are a waste of public resources” November 9). He also failed to take into account the overall operating environment confronting not just the SEZs, but the economy in general. This reveals a poor understanding of the SEZ programme. Some of his assertions are countered below in the hope of providing open-minded analysis of the programme.

SEZs do not function in isolation from the national economy, and one impediment to their progress has been poor economic growth. When the economy is not growing government spending tends to be low, translating into lower infrastructure investments (reduced capital expenditure) and less SEZ development. There is a high opportunity cost in delaying SEZ development in the form of less foreign direct investment attracted and low or no labour absorption, and insufficient business and skills creation opportunities.

Our SEZs have tenaciously moved forward despite such challenges. The programme has attracted 165 operational investors on site, with a total private investment of R21,78bn. There are still 81 secured investors valued at about R40bn that are at various levels of development, with some already at construction and commissioning phase.

Today the programme has progressed from being a largely export driven industrial initiative to an instrument that can be used to achieve wider national economic development objectives. It has become a component of spatial industrial policy to support and propel regional production and, ultimately, growth.

The programme has also made provision for the involvement of the private sector in the development and management of zones. This is now being introduced to deal with the burden placed on public resources and to increase the efficiency of zones. It is recognised that the management of zones is enhanced when they are operated on a cost recovery basis for both public and private zones.

However, despite some SEZs performing well, low economic growth strains progress. Some SEZs have been unable to absorb labour because the economic conditions will not enable them to incur extra costs for employment as well as skills training initiatives. Poor employment levels and access to markets for some investors, especially small & medium enterprises, have had negative spiral effects on socioeconomic conditions, consumer spending and regional development.

Gumede believes SEZs are established when government lacks the ability to create an overall conducive investment environment. One of the foremost determinants of success of an SEZ is the competitiveness of the national economy. Research conducted by the World Bank has found a strong correlation between the success of an SEZ in achieving its outcomes and the national investment environment. As evidenced by the success of SEZs in South East Asia, these were established precisely because of government’s capacity to develop both.

A similar argument can be made for public infrastructure. For the SEZ Programme to flourish, workable public infrastructure must exist not just inside the zone but outside as well. It would be absurd and wasteful to invest in industrial infrastructure inside a zone and neglect critical infrastructure such as roads, electricity and rail outside it. All of the SEZs make use of national roads and ports to deliver their goods.

No SEZ has been designated without the completion of a detailed feasibility study and bankable business plan. These must clearly demonstrate the business case for its establishment, including the identification of sources of potential demand from investors for accommodation in the zone. Robust criteria for evaluation of applications for designation have been drafted and the viability and sustainability of any proposed zone are rigorously tested.

It is true that some SEZs have taken long to develop due to circumstances beyond their control. However those that have been designated but are yet to become operational are now receiving direct assistance through a technical team from the department of trade, industry & competition.

For some reason Gumede decided to use old desktop information to draw conclusions about some of the zones.  It would have helped to do some data collection, to support his desire to make a meaningful contribution to the SEZ policy discourse.

The Coega SEZ was one of the first and was designated under the Industrial Development Zone policy, as Gumede correctly noted. However, despite its turbulent and uncertain origins the zone has become a success story in Africa and has received a number of awards recognising its accomplishments over the years. Coega could easily have become a forgotten, ill-conceived project, a white elephant where the cost of its development was not aligned to its usefulness.

Yet today the zone is home to 49 private investors valued at R11.2bn, with seven investments in the pipeline. Its management and project implementation capacity has garnered much acclaim and the zone is attracting a number of large multinational corporations that have brought with them not just employment opportunities, but new innovations and technology, management and strategic skills, local supplier linkages and social investments in the surrounding communities. This is not only applicable to Coega. International investors at the East London Industrial Development Zone and Dube TradePort have made similar contributions.

As far as the Dube TradePort is concerned, Gumede provides a fallacious account of its history, failing to update readers on the current status of the zone. He deliberately sidesteps the numerous international and national awards presented to the SEZ in recognition of its work in investment attraction and overall economic development (such as the Geneva-based Fédération Mondiale des Zones Franches and World Free & Special Economic Zones Federation). He ignores the 47 operational investors with a private sector investment value of R4bn to date, creating a total of 4,525 direct permanent jobs, 7,121 temporary jobs and R2.5bn in the export of value-added manufactured goods.

Realising the full potential of all of our regions is a goal inscribed in a number of industrial policies. Areas that lack the fundamental requirements for industrial success such as the availability of a consistent supply of electricity and water, connectivity to national road and rail networks, good telecommunications as well as social infrastructure including schools, further education & training facilities and hospitals, will always be at a disadvantage in terms of developing and attracting industry. SEZs can be used to unlock this potential through infrastructural initiatives and investment in skills development.

Resources invested into the SEZs have the potential to create opportunities and provide a context for a spatially balanced industrial economy where all three spheres of government and the private sector participate in their planning, development and management. The success of such an approach has been demonstrated by the Tshwane Automotive SEZ, which is driven by all three spheres of government, not just by Ford SA.

• Majola is deputy trade, industry & competition minister.