Londiwe Buthelezi
The department of Trade and Industry wants to create an economically enabling environment for the investors of the proposed special economic zones (SEZs), but does not intend to create “tax holidays”.
Speaking in Parliament yesterday, department deputy director-general Tumelo Chipfupa said a more holistic approach to financial support would be pursued by the government, development finance institutions and parastatals to make the SEZs a success.
Chipfupa said incentives were a major weakness and were partially to blame for the underperformance of the country’s existing industrial development zones (IDZs).
He said the support that the department provided to the IDZs was limited and the fact that the department and utilities were pulling in different directions had cost the country investments. “Because of their unsustainable nature, as they were funded through incentives, some IDZs ceased to exist when incentives were removed,” he said. He added that a diversified funding model was needed for SEZs.
The department gazetted the SEZ policy last month and this week it began with public engagements in provinces.
Categories of SEZs include free ports, free trade zones, industrial parks, science and technology parks, sector development zones, partial development corridors and IDZs.
Tatenda Zingoni, a research analyst at Frost & Sullivan, said SEZs in some countries offered a different regulatory environment to other parts of the country, with regards to tax regime, foreign exchange remittances and labour laws.
“A major difference between the South African SEZ Bill and other international SEZ frameworks, pertains to the labour component. Flexibility with regards to the labour employed in SEZs has not been built into the proposed South African bill,” Zingoni said.
But he said that as the bill was still in draft form and no specific incentives had been outlined, it was still too early to gauge how the proposed SEZs would compare with other international SEZs with regards to incentives.
Mike Schussler, a senior economist at Economists.co.za, said tax reductions would be the biggest enabler of the success of SEZs, but he said incentives should go beyond taxes and include electricity and trade concessions, and have more flexible labour laws. He said South Africa should look at incentivising more sectors instead of focusing on the few that already benefited.
“In South Africa even if we do provide tax incentives, all our other laws are applied, which is why we are not as competitive. If you look at Bangladesh, textiles have free entry into the country, labour is cheap and there are low taxes.
“Of course there are industries that we can’t compete on, but we have to find the right industries to compete with,” Schussler said.
Chipfupa said the department was identifying new SEZ sites with provinces and had received a number of submissions, but these proposals still needed some work on details. He said the department would allocate some money to build capacity and technical facility in the provinces so they could put together detailed plans.
He said once the public engagements had been finalised, the department would engage with business and labour at Nedlac and then table the policy in Parliament.
Public engagements are due for completion on March 8 and the bill is open for public comment until March 22.
The chairman of the select committee on trade and international relations, Dumisani Gamede, said there seemed to be a lack of willingness from the government to assist IDZs and therefore the department needed to ensure that SEZs were aligned with plans by Transnet and other parastatals.
Chipfupa said the department wanted to include Eskom and Transnet on the SEZ board that would be established under the bill. He said funding for the establishment of SEZs would come from the finance minister’s economic support package, Treasury and a yet to be established SEZ fund.