May 07, 2013:
With no clear incentives and poor location choices, the ten Special Economic Zones (SEZs) identified by the Department of Trade and Industry last week could become nothing more than industrial parks.
Following in the footsteps of the Industrial Development Zones (IDZs) government could invest billions in propping up SEZs with very little results if incentives and the development approach does not change.
The SEZs that have been identified are in outlying areas (see map). Sidwell Medupe, Dti spokesperson, said that the objective of identifying the SEZs in outlying areas was to ensure that development is not only concentrated in urban areas.
Antony Altbeker, a researcher at the Centre for Development and Enterprise (CDE), says that SEZs are usually aimed at the export market, making the logistics chain and access to ports important. Only some of the areas identified by the Dti meet the criteria to meet export market needs, Altbeker points out.
One of the SEZs is Tubatse, located in the Sekhukhune district municipality in Limpopo. The municipality’s website describes the area as one that comprises of “175 farms, which is indicative of the rural composition of the area, the strong reliance on mining and agriculture and subsistence farming and the dispersed settlement patterns informs the socio-economic development of the area”.
A report by the CDE highlights that SEZs are “badly suited to uplifting poor regions”. The CDE report states that lack of infrastructure and limited access to skilled labour would require SEZs to offer extensive incentive and investing in infrastructure to make the area economically viable.
Altbeker says that even though there is nothing wrong with subsidising these areas, the business case to do so needs to be clear.
He explains that South Africa’s main challenge is unemployment – it would make sense that SEZs are initiated to address high unemployment levels. However, the existing labour market regulations would not allow the SEZs to do so, Altbeker says. There was also no indication from the Dti that labour laws in the SEZs could be changed.
According to the CDE there are over 3 000 SEZs globally creating 68 million direct jobs and $500 billion worth of trade-related value-add. In a recent Moneyweb article, the Freedom Market Foundation (FMF) pointed out that South Africa’s SEZs would be competing with other global SEZs and would need to provide incentives that would lure investors to South Africa and not to China or India.
South Africa fared poorly when offering competitive incentives. The same CDE report highlights that the IDZs initiated in 2000 have failed because there have been no special incentives: “the zones also do not deviate from the social, labour, and environmental legislation in force else wherein the country”.
South Africa has three IDZs, located at Coega (Port Elizabeth), East London and Richards Bay. The CDE report highlights that the zones have not met expectations, mainly creating construction jobs even though the Dti invested R5.3bn in developing the zones.
However, Altbeker adds there could potential benefits for supporting industries to benefit from the SEZs. But, government still had a lot of thinking to do around the SEZs so that the business case could be clear.
The Dti is to conduct feasibility studies in order to find out what opportunities can be developed at the ten nomintated sites. The studies should be completed by the end of the 2013/2014 financial year.