Still a long way to go for special economic zone programme
Government’s special economic zone programme offers the promise of economic development. But the recent launch of the Maluti-A-Phofung zone threw into relief just how much work still has to be done
There was a feeling of déjà vu and just a hint of irony in late April when President Jacob Zuma flew in by helicopter — and amid much fanfare — to launch the Maluti-A-Phofung special economic zone (SEZ) near Harrismith in the eastern Free State.
Looking tired from the burdens of office, he told an enthusiastic audience that government will kick-start economic activities in townships and rural communities by attracting direct foreign and domestic investment.
Under the state’s SEZ programme, the 1,038ha zone provides "qualified investors" with a 15% corporate tax rate instead of the normal 28%, a building allowance, the 12i tax allowance to develop greenfields operations and a customs-controlled area.
Such incentives were not available under the earlier industrial development zone (IDZ) programme, which government admits was largely a failure. IDZs drew little investment over the years and some lost anchor tenants after the global financial crisis hit, helped by high Eskom electricity tariffs and erratic power supply.
"The special economic zones programme is important to our economic development goals. It is also critical to our efforts of radically transforming our economy," Zuma said at the launch event. "They [the zones] must ... provide business opportunities for companies owned by black people. The majority cannot continue to rely on the skills and know-how of the minority, even though these are very important and needed in the economy."
Zuma also said strong partnerships between the public and private sectors are important. "Government understands and appreciates the role of the private sector as an investor, innovator, trader, creator of jobs ... and understands what the private sector requires to prosper and compete globally. Government is also willing to play its part as a reliable, supportive and responsive partner."
Zuma was joined at the launch by his ardent supporter, Free State premier Ace Magashule, and trade & industry minister Rob Davies.
Davies said under the SEZ programme, the "migration" of IDZs to SEZs is ongoing. Including IDZs in Coega near Port Elizabeth, Richards Bay in KwaZulu Natal, East London in the Eastern Cape, and Saldanha Bay in the Western Cape, there are now eight designated SEZs in SA.
Along with the Maluti-A-Phofung SEZ, government is hoping the Dube TradePort near Durban, the OR Tambo aerotropolis in Gauteng and the Musina-Makhado SEZ in Limpopo will attract significant investment.
The Maluti-A-Phofung zone is one of numerous apartheid-era industrial parks adjacent to former "Bantustans". Government has allocated more than R289m to revive these areas.
Zuma and Davies said these parks were introduced by the former National Party government not so much for their economic potential, but to sustain separate development under apartheid. Black people supplied low-cost labour only, said Zuma.
This tainted memory meant these industrial parks were left to decay after SA’s former homelands were abolished. But 23 years later, Davies said, some of them will be redesignated as government targets, developing clusters of industry across all of SA’s provinces.
Zuma said that for years SA’s economic reliance on cities has meant many other regions have been "severely neglected". He did not say who is responsible for this Rip Van Winkle state of torpor. But he did tell traditional leaders in parliament in March that SA’s operational zones have attracted 69 investment projects worth R9.4bn.
"In addition, there are already signed investment projects which are being prepared for rollout with a total investment value of R41bn," he said.
This sum presumably refers to Limpopo’s Musina-Makhado zone — designated as the first SEZ under government’s new SEZ Act, which replaces IDZs with SEZs. It will have energy, metallurgical, agro-processing and petrochemical clusters.
The department of trade & industry says an operator agreement was signed in March 2017 between the zone and China’s Shenzhen Hoimor Resources Holding Co. Initial investment is expected to exceed R40bn.
But the numbers do not add up. Coega, established 17 years ago, has recently attracted an R11bn Chinese automotive project. It is also pertinent to note that this sum alone is greater than the overall amount government says has been invested in all of SA’s existing industrial zones to date.
The Maluti-A-Phofung SEZ has an investment pipeline of R2.6bn. It will initially be a logistics hub between Durban and Johannesburg, relieving some of the pressure on Durban’s port by offering alternative storage, staging and packaging services.
Thereafter, it will prioritise the development of automotive, agro-processing, textiles, information technology, pharmaceuticals and general processing businesses.
However, what government neglects to say is that a plan to break ground on a much-vaunted multibillion-rand greenfields Chinese taxi assembly plant as far back as 2011 never came about, and was reported in the media to be a fraudulent project.
The launch of the Maluti-A-Phofung zone has put paid to controversial plans by the SA National Roads Agency to shorten the Johannesburg-Durban route by bypassing Harrismith. This could have cost the town an estimated R900m/year in revenues, despite ostensibly providing cost savings for truckers.
Zuma said drinks company Distell will develop an agro-processing cluster in the Maluti-A-Phofung region that will also assist emerging farmers to produce quality apples for beverage inputs.
But according to Free State DA leader Roy Jankielsohn, the Maluti-A-Phofung local municipality in which the SEZ falls is bankrupt. In a statement released on the day the SEZ was launched, he said the municipality owes Eskom R1.8bn and that nearby communities have been living without sustained water supply for several years amid a "complete breakdown in basic municipal service delivery".
In addition, the auditor-general in recent years found the municipality’s unauthorised expenditure to be almost R1bn. To this end, Jankielsohn said the "relaunch" of the Maluti-A-Phofung SEZ "is nothing but a waste of money".
"About R40m was spent on erecting a perimeter fence and entrance, which only created about 70 temporary jobs. The fence has since been vandalised in several places," he said.
Jankielsohn said the DA fully supports the SEZ in principle, but only if an environment is created that enables job-creating investment while "combating corruption".
Gert van Tonder, entrepreneur and director of office furniture maker Entrawood, says the SEZ designation status for the Maluti-A-Phofung zone is promising. His business employs about 210 people locally and has been situated there since the zone was part of the Qwaqwa Development Corp in the apartheid era.
He says about 15 companies have continued to operate in the zone since the 1990s. These include Boxmore Packaging, a plastics container maker, a clothing company and a food ingredients maker.
"This place has been standing dormant for 25 years," Van Tonder says. "With the [SEZ] licence being issued ... we are most positive about the future."
He says in recent years the zone has been without electricity for a total of about four months after a nearby electricity substation blew up — twice (once from cable theft). Entrawood installed a diesel generator. Van Tonder says the company has also had water issues at times because the regional reservoir has not been maintained.
Zuma said the SEZ programme will change such problems over time. It aims to bring higher and technical education along with better infrastructure to local entrepreneurs, so they can supply global markets "at globally competitive prices".
The 2017 budget allocates R4.2bn for industrial infrastructure in SEZs and industrial parks over the medium-term expenditure framework. But with Zuma sacking former finance minister Pravin Gordhan, this has become moot.
However, new finance minister Malusi Gigaba told a Black Business Council roundtable ahead of the World Economic Forum on Africa in Durban that government is going to focus on putting enabling infrastructure in place. This is so the private sector can have the basic services, electricity and transport networks to produce and transport world-class goods and services, he said.