Article – Development zones get a shove3 March 2014
28 February 2014
Mail & Guardian
Meaningful incentives such as tax breaks and labour reform are finally on the cards for the special economic zones (SEZs) but they face continued delays — and a budget cut.
The zones were mentioned enough times in Finance Minister Pravin Gordhan’s budget speech on Wednesday to suggest there is indeed a renewed and determined drive to get the manufacturing hubs off the ground.
He spoke about tax measures to promote economic growth and said: “Special economic zones are allocated R3.6-billion to promote value-added exports and generate jobs in economically disadvantaged parts of the country.”
This allocation accounts for almost 11% of the trade and industry department’s R33-billion budget for the next three years.
The industrial development zones programme was introduced in 1999 but the zones were widely criticised for their inability to make manufacturing in South Africa globally competitive and for not attracting enough investment.
“[It] had some initial success in meeting its goals but a review in 2008 showed a number of weaknesses,” the department of trade and industry said in its budget vote earlier this month.
Special economic zones
“As a result, the special economic zones strategic framework was developed and encapsulated in the Special Economic Zones Bill (2013). The … programme will now consist of special economic zones as well as industrial development zones,” the department said.
But industrial policy experts have argued that, in order for the special economic zones to succeed, meaningful tax breaks and labour reform are needed. It would appear that, in its 2014 budget, the government aims to do just that.
In his speech, Gordhan said incentives for industry will be increased and the zones will play a part in the national strategy for youth development and employment.
According to the budget review, the employment tax incentive, which lowers the cost of hiring young workers, can be expanded to special economic zones and specific sectors.
“Tax and other incentives to support special economic zones are being finalised.
“These zones will promote value-added exports and generate jobs in economically disadvantaged parts of the country,” the review said.
Spending on the zones to drop
According to the department’s budget vote, expenditure in the incentive development and administration programme grew at an average annual rate of 24.5% between 2010-2011 and 2013-2014, mainly because of the implementation of the special economic zones investment incentives scheme programme and the manufacturing competitiveness enhancement programme.
But this year spending on the zones will drop from R888-million in the 2012-2013 financial year to R650-million in 2014-2015, and then be increased to R1.2-billion and R1.73-billion in the two years that follow.
“Over the medium term, the special economic zone investment incentive has a revised allocation of R3.6-billion, reduced by R553-million due to the need to conduct the preparatory work before the project becomes operational,” the department said.
“This will be used mainly for conducting prefeasibility and feasibility studies for the proposed special economic zones in all nine provinces, infrastructure projects in the existing industrial development zones, and newly designated special economic zones through the incentive scheme.”
The department said the reduction to the special economic zones investment incentives is not expected to affect service delivery negatively as the Special Economic Zones Bill was not passed in 2013 and the deferment will enable the planning process to take shape.
Between 2001-2002 and 2012-2013, the department transferred R6.1-billion to the Coega, East London and Richards Bay industrial development zones in order to develop infrastructure.
To date, these zones have attracted 72 investors and R17-billion worth of investments.
Forty-two projects are already operational and these zones have collectively created 49 000 direct and indirect jobs.
Some of the industrial development zones have faced significant delays.
In Richards Bay, the industrial development zone was designated in 2002 but, owing to delays related to land, environmental and other issues, infrastructure development only began in 2010-2011.
The OR Tambo International Airport industrial development zone was designated in 2002 and received a provisional operator permit in 2010.
The first phase of construction, on 6.1 hectares of land leased from the Airports Company of South Africa, was scheduled to begin in 2013-2014, but this has not yet taken place, the department said.
Despite years of talk of a Saldanha Bay industrial development zone, this was only designated in August last year.
Courtesy of Mail & Guardian