Special Economic Zones
South Africa is investing in SEZs as a major plank of its industrial development policy. The aim is to attract new skills and develop new industries.
The Eastern Cape has two such zones, the East London Industrial Development Zone (supported by the Port of East London) and the Coega Industrial Development Zone (at the Port of Ngqura in the Nelson Mandela Metropolitan Municipality).
Key goals behind the establishment of SEZs are:
- to encourage industries to develop in clusters, leading to economies of scale, skills-sharing and easier access for 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 developments.
Special Economic Zones are created in terms of the Special Economic Zones Act of 2014 (Act 16 of 2014). The act defines an SEZ 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”.
As of 2015/16, the regulatory framework began to change for existing Industrial Development Zones such as those that at East London (ELIDZ) and Coega (CIDZ). There will be a three-year transition period to SEZ status that will include SEZ-specific tax incentives and the introduction of one-stop-shops for state services. The cumulative effect should be to boost the attractiveness of SEZs to foreign investors.
Apart from attracting foreign direct investment (FDI) and boosting employment, SEZs can play a role in helping to add new sectors or sub-sectors to an economy.
For the Eastern Cape’s two industrial parks, this has already started to happen with investors in renewable energy and aquaculture having built their infrastructure and started trading. The skills relevant to the automotive sector and the automotive parts sector – huge elements of the Eastern Cape economy – are transferable to renewable energy manufacturing, or to ship-building.
Incentives include tax breaks from the South African Revenue Service, subsidised interest rates from the Industrial Development Corporation, subsidies for employees earning below a certain level and for training, incentives and grants from the Department of Trade and Industry (dti) and from national electricity utility Eskom. The SEZ is also a Customs Controlled Area.
Within the dti’s Manufacturing Competitiveness Enhancement Programme, there is a Green Energy Efficiency Fund.
The national independent power suppliers’ programme, whereby private companies or consortiums bid to build renewable energy plants, has won international praise for its efficiency. The Eastern Cape has been particularly attractive to wind power producers. The Port of Ngqura’s ability to receive the massive components of wind turbines has been a boon to the project developers.
Coega IDZ hosts several solar and wind component manufacturing facilities. Investors include DCD Wind Towers and Electrawinds. ILB Helios produces solar panels units at the ELIDZ.
The Coega IDZ is home to the gas-fired Dedisa Peaking Power Plant and was named in 2016 as the preferred site for a 1 000MW concession for a Liquefied Natural Gas (LNG) plant. When a private investor is found, Coega IDZ will have significant new energy infrastructure.
Another potential game-changer is the possibility that a manganese smelter could be built at the IDZ. The Port of Port Elizabeth has for many years exported manganese.
The recent announcement that the Port of Ngqura will soon host a new liquid bulk handling facility expands the perception that energy is becoming a speciality for Coega. Transnet National Ports Authority (TNPA) and Oiltanking Grindrod Calulo have signed an agreement in this regard. This will create a new tank farm for the Eastern Cape when the lease for petroleum storage facilities at the Port of Port Elizabeth expires.
In the 2015/16 period, the Coega Development Corporation (which runs the IDZ) created 18 366 jobs through projects in the IDZ and its infrastructure development programme elsewhere in the province. Seventeen additional investors signed up, valued at R26.9-billion. More than 96 000 jobs have been created since the IDZ was launched.
The latest investment into the Coega IDZ is from Beijing Automobile International Corporation (BAIC), who will take a 65% stake in an R11-billion joint venture with the Industrial Development Corporation with the intention of producing 100 000 vehicles. First Automotive Works (FAW) has already established a R600-million assembly plant in Zone 2.
East London IDZ
The East London IDZ has a major dairy in Sundale, a diamond cutting and polishing works in Matla Diamond Works, and investors in steel, aquaculture and solar panel manufacturing. It also has a strong suite in logistics, with DHL Freight, UTi Logistics, Milltrans and Bigfoot Express Freight all present in the zone. But it is the presence of specialist logistics company, Vehicle Delivery Service, which reveals the IDZ’s strongest sector, automotive and automotive parts.
Within the IDZ is the Automotive Supplier Park (ASP) which in turn is located in the Customs Controlled Area within a 10km radius of Mercedes-Benz South Africa, the East London Airport, the highway and the Port of East London.
Feltex is represented by no fewer than six operations, including Feltex Automotive Trim, Feltex Fehrer (Mercedes-Benz seat pads and head rests) and Feltex Trim and Caravelle Carpets.
Other automotive companies include RG BROSE (doors), Boysen (exhaust systems), Automould, TI Automotive Fuel Systems, Molan Pino (polypropylene foam) and Yanfeng Automotive Interiors.
Published as a Special Feature in the 2017 edition Eastern Cape Business