South Africa is investing in Special Economic Zones (SEZs) as a major plank of its industrial development policy. A range of incentives are available to attract new skills and develop new industries.
Key goals behind the establishment of SEZs
- To encourage industries to develop in clusters, leading to economies of scale, skills-sharing and easier access by suppliers
- To create industrial infrastructure to promote investment
- To promote cooperation between the public and private sectors
- To use the zones as a launching pad for other plans to further development.
Apart from attracting foreign direct investment (FDI) and boosting employment, SEZs can also play a role in helping to add new sectors or sub-sectors to an economy.
South Africa is targeting a variety of sectors in SEZs around the country, but there is a emphasis on beneficiation, mainly of minerals but also agricultural processing. There is a strong feeling that South Africa can do much more with the product of its soils – whether that be using manganese to convert iron into steel or creating fruit juices out of apples and pears.
Special Economic Zones are created in terms of the Special Economic Zones Act of 2014 (Act 16 of 2014). The act defines SEZs as “geographically designated areas of the country that are set aside for specifically targeted economic activities, and supported through special arrangements and systems that are often different from those that apply to the rest of the country”. Lower corporate tax rates and duty-free imports are among the advantages that accrue to investors.
SEZs come in different forms: South Africa has several existing Industrial Development Zones (IDZs) and a Free Trade Port (FTP). The Coega IDZ (Nelson Mandela Bay Metropole) and the Dube TradePort at the King Shaka International Airport outside Durban are two well-known examples.
The most recently licensed SEZ is the Musina-Makhado SEZ in Limpopo, where the facility’s strategic location on the border with Zimbabwe is allied to the strong mineral resources in the surrounding countryside.
Other licenced IDZs are at Saldanha Bay, East London and Richards Bay. The Dube TradePort aims to leverage its proximity to an airport. In the same way, aerotropolis developments are mooted for Ekurhuleni (OR Tambo International Airport) and Cape Town International Airport.
Coega IDZ has attracted huge investments from a variety of Chinese firms in the engineering, solar manufacturing and automotive sectors. This includes an investment from Beijing Automobile Corporation (BAIC) which took a 65% stake in a multi-billion-rand joint venture with the Industrial Development Corporation with the intention of producing 100 000 vehicles. First Automotive Works (FAW) has a R600-million assembly plant in Zone 2 at Coega.
Richards Bay (pictured above), apart from being the country’s main site for the export of coal, is also a registered Industrial Development Zone (IDZ) and consequently is in a position to attract investors in a range of sectors. Recent developments at RBIDZ have seen an investment in an oil and gas facility and it is hoped that the ocean will yield finds of gas to provide cheap feedstock.
The Maluti-A-Phofung Special Economic Zone takes advantage of the strategic position Harrismith holds in the Free State’s north-eastern corner. The N3 highway carries huge volumes of cargo between Gauteng and the ports of KwaZulu-Natal so it is logical that the first focus of this SEZ is logistics.
Plans are far advanced for the official recognition of an SEZ at Upington in the Northern Cape. The 400 ha site of the Upington SEZ is close to the regional airport and is well served by access roads. One of the goals is to capitalise on the existing solar power industry by promoting special investment packages to investors in that field, and encouraging the development of skills and services to support that sector within the SEZ.
Another type of SEZ is an Export Processing Zone (EPZ). All of these interventions are intended to form of broader trade and investment plans such as National Development Plan (NDP) and the Industrial Policy Action Plan (IPAP). The NDP is a broad-strokes plan that seeks to coordinate development in a range of sectors, and promotes ambitious infrastructural projects.
South Africa’s most recent IPAP has a manufacturing focus, so beneficiation fits well into the idea of diversifying and strengthening the country’s ability to make things.
In the context of the new and burgeoning renewable energy sector, the state (through the Department of Trade and Industry, the dti) can pass legislation that requires developers to increase the level of local content on the solar panels or wind turbines that are used.
Specific incentives relating to energy savings and reductions in environmental impact are available, both from Eskom and the dti. Within the dti’s Manufacturing Competitiveness Enhancement Programme, there is a Green Energy Efficiency Fund, all of which are designed to make investment more attractive.
For more information about SEZs in South Africa, see:
- Upington SEZ – Strategic location for solar component manufacturing and aircraft MRO
- Nkomazi SEZ – An incentivised base of operations on the Maputo Development Corridor
- Maluti-A-Phofung SEZ – Logistics hub with a compelling investment proposition