Online Reporter
The South African government says it is considering allowing privately owned special economic zones (SEZs) with enhanced incentives and fast-track permitting to boost investment and create jobs.
In one of the strongest signals yet that the government is serious about reversing SA’s deindustrialisation path, President Cyril Ramaphosa said on Thursday that SEZs form a crucial pillar of the country’s new industrialisation strategy.
Speaking during a video address to delegates at the Second International SEZs Conference in Durban on Thursday night, President Ramaphosa said the government would look at implementing World Bank recommendations calling for better incentives and private SEZ ownership.
South Africa has 12 SEZs, but only four — Coega, East London Industrial Development Zone, Dube TradePort and Tshwane Automotive SEZ — have attracted any meaningful investment since launch in 2014.
The government has invested R25 billion in these 12 zones, which attracted a total investment of R34 billion and created 30 000 jobs, generating revenue of R14 billion for the fiscus.
One of the best SEZs in South Africa is the Tshwane Automotive SEZ, which has attracted pledged investment of R12 billion.
China’s and Vietnam’s most successful SEZs have attracted many times the initial public investment and created millions of jobs. Unlike in South Africa, these programmes are largely privately owned and run.
South Africa’s SEZ programme has been criticised as weak on incentives, swaddled in red tape, constrained by BEE procurement rules — and run by the government.
The promise of a one-stop SEZ shop is far from reality for most businesses applying to enter these zones. SEZs are designated industrial areas where businesses receive tax, customs and regulatory incentives to encourage investment, manufacturing, exports and job creation.
“Our SEZ programme has become one of the cornerstones of our national investment strategy,” said President Ramaphosa. “Through modern infrastructure, secure industrial sites, reliable utilities, efficient logistics and integrated one-stop investor support, our SEZs reduce the cost of doing business and improve investor confidence.”
President Ramaphosa’s comments come just weeks after the release of a World Bank report calling for private sector industrial parks to be designated as SEZs, using the Dube TradePort SEZ in KwaZulu-Natal as a template for the rest of the country. The report also called for the 15 percent corporate income tax rate (instead of the standard 27 percent) to apply across all SEZs and not just a few — as is currently the case.
Only 12 percent of businesses within South African SEZs have successfully claimed the headline 15 percent tax rate — a damning indictment of the incentive’s accessibility, says the World Bank. It also calls for accelerated depreciation write-offs, VAT exemptions, import duty rebates, zero-rating of exports and employment tax incentives. The World Bank study found that 67 percent of SEZ operators believe the current SEZ policy is not working well, with 57 percent citing tax incentive eligibility criteria as the most impractical SEZ Act requirement.
South Africa positions investment promotion at the centre of its economic programme, said President Ramaphosa. Earlier this year it was announced that SA had secured R890 billion in investment commitments in mining, mineral beneficiation, automotive manufacturing, agro-processing, tourism, renewable energy, digital technologies and the green economy. Much of this investment is destined for SEZs.
“Around the world, nations are reshaping their industrial policies to strengthen supply chains, improve competitiveness and secure strategic industries. South Africa must do the same,” said President Ramaphosa.
“Our SEZs are central to this effort. They will play an increasingly important role in advanced manufacturing, electric mobility, renewable energy technologies, green hydrogen, battery manufacturing, digital industries, pharmaceuticals, agro-processing and the beneficiation of our abundant mineral resources.”
The World Bank found South Africa’s job creation through SEZs lagged behind peer countries on jobs per hectare and was weak on employment tax incentives and skills development (with just two people trained per R1 million spent). — Moneyweb
