Davies Speech: On the Special Economic Zones Bill 2013

Address by the Minister of Trade and Industry, Dr Rob Davies to the National Council of Provinces (NCOP), on the Special Economic Zones Bill 2013. 18 February 2014, Parliament

Introduction 

The Special Economic Zone (SEZ) Bill that is being tabled today aims to support a broader- based industrialisation growth path for our country, balanced regional industrial growth, and the development of more competitive and productive regional economies– with strong up and downstream linkages in strategic value chains.  Adoption of this Bill will be a significant milestone in pursuit of the aspirations expressed in the National Development Plan (NDP), New Growth Path (NGP) and Industrial Policy Action Plan (IPAP).

 SEZs are defined as geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements and systems that are often different from those that apply in the rest of the country.

 Preceding the SEZ Bill, the department of trade and industry (the dti) initiated the Industrial Development Zone (IDZ) programme under the Manufacturing Development Act (MDA) in 2000. The focus of the IDZ programme was largely to attract foreign direct investment, increase exportation of value added manufactured products and creates linkages between domestic and zone based industries. To date five IDZs have been designated (i.e Coega; East London, Richards Bay,  OR Tambo and Saldanha Bay), with the newly designated Saldanha Bay in October 2013. Honourable speaker, I can confidently indicate to this house that there are already eight investors in the Oil and Gas sector that are signing to invest at Saldanha Bay IDZ. Three of the five IDZs in Coega, East London and Richards Bay are fully operational.  Whilst these have achieved some major successes, 42 operational investments worth R4bn and created over 5,000 direct jobs and 43,000 construction jobs), some weaknesses on the implementation were identified during IDZ policy review, which include: 

  • weak governance,
  • lack of IDZ incentives,
  • poor stakeholder co-ordination, and
  • lack of integrated planning.

 Most importantly the criteria for IDZ designation were biased towards the development of coastal regions and ignored economic potentials existing in the inland regions; IDZs by nature are export oriented and vicinity to the sea or airport becomes strategic for logistics purposes. Due to the identified weaknesses above, the programme could not assist the country to unlock the long term development potential of all regions and reverse the process of economic marginalisation and perpetuation of spatial inequalities.

 Confronted with these challenges (especially, the concentration of economic activities around metropolitan areas in three regions, namely Gauteng, KwaZulu-Natal and Western Cape), including economic crisis that started in 2008, the dti recognised that measures responding to both global and domestic economic conditions require a focus on new sources of competitiveness that lie in innovation and productivity, with an entrenched base in skills, infrastructure and efficient responsive state action, that is, more versatile policy instruments.

 the dti has therefore identified SEZ programme as one of the appropriate mechanisms that will contribute towards the realisation of economic growth and development goals as envisaged in the IPAP, NGP and NDP. Besides the SEZ Bill serving as an enabler for the government to effectively regulate all SEZs including IDZs which are one category of SEZ, it also proposes an internationally competitive SEZs value proposition that would assist in attracting both domestic and foreign direct investments into the zones. The intention is that industrial production in the SEZs will focus on the manufacture of value added goods. Once designated, it is expected that each SEZ will have strong backward and forward linkages with other sectors in its locality building and strengthening localisation through supplier development programmes – a departure from the traditional SEZ model where you had SEZs as separate enclaves.

 The Special Economic Zones Bill

As indicated above, Special Economic Zones are just one of many policy tools available to Government in its drive for increased industrialization. SEZs offer a potentially valuable tool to overcome some of the existing constraints to developing industrial capabilities, attracting investments and growing exports. The aim of the SEZ Bill seeks to boost private investment (domestic and foreign) to labour-intensive areas to increase job creation, competitiveness, skills and technology transfer and exports of beneficiated products.

 The Bill builds on the experience that we have gained from the IDZ programme and   introduces a number of new measures that take into consideration inputs by the general public and social partners at NEDLAC. The SEZ Bill thus provides for the:

·                    Designation, promotion, development, operation and management of SEZs,

·                    Determination of SEZ Policy and Strategy,

·                    Establishment of SEZ Advisory Board and SEZ Fund,

·                    Regulatory measures and incentives for SEZs to attract domestic and foreign direct investment, and

·                    Establishment of a single point of contact or One-Stop Shop to deliver government services.

 The Bill introduces a variation of Special Economic Zones, to cater for the various socio-economic and regional/spatial planning considerations of the various spheres of government at local, provincial and national level. In particular, the SEZ Bill provides for the designation of the following types of SEZs: 

•          Free Ports:  Duty free areas adjacent to a port of entry where imported goods may be unloaded for value-adding activities, repackaging, storage and subsequent re-export, subject to special customs  procedures

•          Free Trade Zones: a duty free area offering storage and distribution facilities for value-adding activities within the Special Economic Zone

•          Industrial Development Zone: A purpose built industrial estate that leverages domestic and foreign fixed direct investment in value-added and export-oriented manufacturing industries and services

•          Sector Development/Specialised Zones: A zone focused on the development of a specific sector or industry through the facilitation of general or specific industrial infrastructure, incentives, technical and business services primarily for the export market

 By making it possible to have different categories of Special Economic Zones we aim to address the previous challenges experienced within the IDZ Programme, allowing for tailoring of the individual SEZ’s Strategies, to fit with its individual needs and demands. 

The Public Consultation Process

 The SEZ Bill consultative process started in 2010 with all relevant stakeholders across three spheres of government and State Owned Enterprises, including National Treasury, SARS, NEDLAC and Business community.

MINMEC granted approval for the SEZ Bill and policy to be submitted to Cabinet in August 2011 and Cabinet approved the Bill for public consultation in December 2011. NEDLAC consultative process was finalized in October 2012 and the Bill was introduced to Parliament in March 2013.

The Parliamentary Portfolio Committee on Trade and Industry (“the Portfolio Committee”) invited written submissions from stakeholders.  Submissions were received from Business Unity South Africa (BUSA), the Centre for Development and Enterprise (CDE), the Chemical and Allied Industries’ Association (CAIA), the East London Industrial Development Zone (ELIDZ), the Free Market Foundation (FMF), the Minerals Processing and Beneficiation Industries Association of Southern Africa (MPBIASA), Mr Paul Hjul, and the Richards Bay Industrial Development Zone (RBIDZ).

Some of the issues addressed, which have further been elucidated on and addressed in the Bill, include the following:

·                    Defining the composition and nature of the Special Economic Zones Advisory Board (the SEZ Advisory Board”), term of office of members and removal of SEZ Advisory Board;

·                    Describing roles and functions of and the relationship between the various structures created in the Bill;

·                    Clarifying how the one-stop-shop will operate in order to streamline approval processes and reduce red-tape;

·                    Providing for a public consultation process prior to the Minister making certain decisions; and

·                    Explaining details on the IDZ transitional arrangements.

 After the Portfolio Committee supported the Bill, it was then tabled at National Assembly where it was supported and referred to the National Council of Provinces for concurrence. Through the NCOP, the Bill was presented to eight out of nine provincial legislatures and at 16 provincial public hearing meetings. The Bill received an overwhelming support from the provinces and society at large. The level of support accorded to the Bill by all parties involved is a clear indication that South Africa wants to realise a higher industrial path and improvement of livelihood of its citizens.

 The uniqueness of Special Economic Zones

 The above consultation processes resulted into an improved formal regulatory framework supporting the SEZ programme. Furthermore, extensive regional and international benchmark studies were conducted to determine the appropriate support measures for the SEZ Programme that would allow for South Africa to compete in the international SEZ environment.

 The following support measures were put in place to enhance the South Africa’s SEZ value proposition including:

•          A broader SEZ Incentives Strategy: Allowing for 15% Corporate Tax, Building Tax Allowance, Employment Tax Incentive, Customs Controlled Area (VAT exemption and duty free) and Accelerated 12i Tax Allowance.

•          An Enhanced Funding Strategy: Including a comprehensive SEZ Fund, Mix of funding instruments, PPP arrangements, etcetera.

•          Infrastructure Strategy: Accommodation of bulk infrastructure requirements by government through the SEZ Fund, greater SEZ location considerations, greater involvement of various stakeholders’ roles in providing infrastructure in and out of zone,

•          Skills & Supplier Development: Skills development strategies and frameworks for SEZs are being formulated jointly by the dti and relevant international experts and national authorities. These include Supplier development programmes to develop our local businesses in and around SEZs, as well as continuous training of civil servants on SEZ in partnership with Chinese and other international partners.

•          One Stop Shop (OSS) Strategy: To reduce bureaucracy and red tape (cost of doing business) of government approvals and applications processing, a single point of investor contact will be implemented within each SEZ. This OSS platform aims to reduce information search & transaction costs for investors locating within SEZs, to facilitate permits & licences for investors, to reduce steps in approvals, and to provide a more effective and sustainable investor after care service. The dti is in the process of finalising the One Stop Shop Delivery model that will see the roll out soon.

 Conclusion

 As alluded to above, the dti has consulted broadly with the general public since 2010, with provincial departments responsible for economic development under the auspices of MIN-MEC and provincial legislatures; various national government departments including National Treasury, SARS and the Economic Development Department; existing Industrial Development Zones; and municipalities represented by the South African Local Government Association (“SALGA”) at meetings of MIN-MEC; including Eskom, National Planning Commission, Industrial Development Corporation and Development Bank of Southern Africa.

 The SEZ tax incentives offering that have already been pronounced by the Minister of Finance will ensure that we are able to provide an investment environment that competes effectively with other locations in the world. The incentives will become effective, upon enactment of the SEZ Bill.

 the dti is currently preparing for the implementation of the SEZ Bill  by consulting with all the provinces in identifying the potential SEZs. As a result, together we have commissioned pre-feasibility and feasibilities studies in the various provinces. The designation of new SEZs will take place once the new SEZ Act and Regulations are in place.

 It is thus imperative that the SEZ Bill is expediently considered in order to take advantage of this huge imminent interest and opportunity. This house’s support for the SEZ Bill would be greatly welcomed.

 I would like to express my sincere appreciation to the Select Committee on Trade and International Relations and the Provinces that has tirelessly worked on the SEZ Bill and ensured not only that it is completed within a short space of time, but ensured that a good quality Bill comes out of its process. The Committee’s contribution in this regard has been invaluable. My thanks also go to the dti team for their hard work.

 Minister of Trade and Industry

 

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