Presentation to Select Committee on Trade and International Relations 15 February 2012

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Presentation to Select Committee on Trade and International Relations

15 February 2012

SPECIAL ECONOMIC ZONES POLICY & BILL, 2011

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Name Designation

Mr. Tumelo Chipfupa DDG: The Enterprise Organisation

Mr. Kaya Ngqaka Chief Director: Special Projects

Mr. Dumisani Sombinge Director: Legal Unit

Mr. Warren Smith Deputy Director: Industrial Development Zones

the dti DELEGATION

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Background

•In November 2011, the Cabinet approval for the SEZ Policy and Bill to be published for public participation; • the dti was invited by the Parliamentary Portfolio Committee on Trade and Industry to an initial briefing on the Special Economic Zones Policy and Bill on 25 January 2012; • Held a consultative workshop with the national departments and agencies in Pretoria on 6 February 2012;•Planned consultations with organised labour and business;•Public Participation on the SEZ Bill are underway in all provinces

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Presentation Outline

1. The concept of a Special Economic Zone as a tool for industrial and economic development

2. Brief history of Special Economic Zones in South Africa3. The IDZ Programme4. Review of the IDZ Programme5. Challenges with current IDZ Programme - The review findings6. New SEZ Policy Thrust7. Implementation8. Transitional Arrangements9. Immediate Action Steps10.Recommendations

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1. The SEZ concept as a tool for industrial and economic development

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1.1 Definition: A special economic zone is a geographically designated area of a country set aside for specifically targeted economic activities, which are then supported through special arrangements (which may include laws) and support systems that are often different from those that apply in the rest of the country.

1.2 Uses of SEZs:• SEZs are tools for long-term industrial and economic development,• Create an enabling and sustainable environment for foreign and

domestic direct investment to thrive,• Building targeted industries, developing regions and building

industrial infrastructure.

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1.3 Types:

• There are different categories of SEZ• Sometimes countries use different names for the same concept,

but the strategic intention is more important than the names used• Examples of SEZs:

– Industrial Development Zones,– Free Ports,– Industrial Parks/Estates,– Science and Technology Parks,– Sector Development Zones,– Spatial Development Corridors,

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1.4 Success stories in the use of SEZs:

• There are many successes and failures in the use of SEZs,

• East Asia has many success stories such as the following:

– The City of Shenzhen and the City of Shanghai in China initiated in 1980 and 1990 respectively as a special economic zones,

– Incheon Special Economic Zone The City of Shanghai in China was started in 1990 as an SEZ,

– East Coast Economic Region in Malaysia,– Sohar Economic Zone in Oman, etc

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2. Overview of SEZs History in South Africa ________________________________

2.1 Industrial Development Zones: Introduced around 2000 to promote value-added exports and export-oriented industries,

2.2 Spatial Development Corridors: Introduced to link key development nodes through transportation networks and to catalyse development along the corridors,

2.3 Industrial Parks: Apart from private sector ones, the pre-1994 government introduced industrial parks to develop nodes intended to promote “separate development”

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3. The Industrial Development Zones

Programme ________________________________

3.1 Aim of the Programme:

• To promote value-added exports and export-oriented industries, and

• To attract domestic and foreign direct investment as well as desired foreign technologies.

3.2 Key criterion: Proximity to an international airport or a sea port

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3. The Industrial Development Zones

Programme ________________________________

3.3 Programme Performance (2000-2011):

• Four IDZs designated: Richards Bay, East London, Coega and OR Tambo International Airport, and Saldanha IDZ underway

• Three operational except OR Tambo International Airport,

• Investments: 40 investment projects, R11, 8 billion investments,

• Jobs: +33, 000 jobs created including construction jobs

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4. The Review of the IDZ Programme ________________________________

4.1 Rationale:

a) Developments in National Economic Policies and Strategies: – Since the introduction of the IDZ Programme in 2000, there

have been significant changes industrial and economic policies:

– National Industrial Policy Framework together with IPAP, New Growth Path, National Development Plan;

b) Developments in the Global Economic Environment: – Gradual shift in economic power from West to East, coupled

with new sources of FDI,– New economic blocs: BRICS

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4. The Review of the IDZ Programme ________________________________

4.1 Rationale:

c) Lessons learnt from other countries on how best to use SEZs as global economic drivers: – The fastest growing economies in the world, such as India,

China, Brazil, etc have used the SEZs as instruments to accelerate their industrial development;

d) Modest Performance of the Existing IDZs: – The current achievements are significant but not satisfactory,– +33000 jobs, about 40 investments worth over R11.8 could

have been more.

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5. Challenges with the existing IDZs Programme

_______________________________ 5.1 Design:

– Only one type (category) of SEZ implemented,

– Only few regions could use the instrument: Key criterion of proximity to an international airports and a sea.

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_______________________________ 5.2 Nature of support:

• Support that focused only on the provision of infrastructure rather than a comprehensive support package that should includes skills development, logistics, marketing, finance, research and development, environmental protection, etc;

• Focus only on in-zone activities and enterprises and little else on out-of zone activities (looking at the entire host region),

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_______________________________ 5.3 Ad-hoc planning:

• SEZs are tools for industrial and economic development and need to be integrated into key national, provincial and regional strategies,

• No coordinated planning among IDZs and therefore too much competition among them, rather than competing against foreign zones,

• Planning done on an ad hoc basis and therefore not long-term,

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_______________________________

5.4 Financing: Ad hoc financing of IDZs made it impossible to do long

term planning;

5.5 Inadequate targeting of investments:

• Insufficient coordination among IDZs in investment promotion,

• No unique value proposition for each IDZ to avoid sending contradictory messages to investors.

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_______________________________ 5.6 Governance arrangements:

• SEZs require cooperation and coordination among many stakeholders at national, provincial and local levels,

• Current regulatory framework does not provide sufficient guidance with regard to governance arrangements and roles and responsibilities – leading to the delays in decision making and implementation.

5.7 Inadequate coordination among key government agencies: resulting poor support to IDZs and therefore less than optimal performance.

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6. The New SEZ Policy Thrust _______________________________

The policy seeks to provide a clear framework with respect to the

development, operations and management of SEZs and focuses on the following:

– Expanding the strategic focus and to improve design deficiencies of the existing IDZ Programme,

– Providing a systematic planning framework for development of a variety of SEZs that will support implementation of the IPAP and NGP,

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– Strengthening governance arrangements for the management of SEZs,– Expanding the range of support measures, e.g. infrastructure, in-zone

and out-of-zone support measures,– Developing a predictable financing framework that will enable long term

planning, and– Developing and implementing a comprehensive programme that will

support the development of SEZs.

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6.1 Main aim:

• To support the acceleration of industrial development in order to promote growth and creation of sustainable and decent jobs,

and

• To promote the creation of a regionally diverse industrial economy through the creation of new industrial hubs in underdevelopment regions.

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6.2 Objectives:

– Support the development of targeted industrial capabilities, and attraction of FDI within the IPAP and New Growth Path framework,

– Develop world-class infrastructure (hard and soft) in line with the targeted industries in each region,

– Promote beneficiation and value addition of the country’s minerals,

– Contribute to the acceleration of economic growth and job creation.

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6.3 Key provisions:

• Establishment of an SEZ Board to advise the Minister on policy, strategy and other matters, – Composition: Representatives of key government departments, state

agencies, and independent experts

• Establishment of an SEZ Fund to provide for predictable long-term financing, – On-going adaptation of incentives in line with strategic development

needs

• More diverse SEZs to cater for diverse regional development needs and contexts,

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6.3 Key provisions:

• SEZ Strategy to guide long-term planning, – To be developed by the Minister at least every 5 years

• Applications: Only national, provincial or local governments – Public and Private Partnership also allowed

• Governance: Relevant executive authorities to take overall responsibility for the effective operations and functioning of SEZs– Effective participation of all 3 spheres of government in the

development of an SEZ a requirement

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7. Implementation _______________________________

• The following shall be done/coordinated by the dti in conjunction with other departments and agencies in implementing the policy:

– A national Marketing Strategy: to promote SEZs internationally and domestically;

– Capacity Development Programme for government officials (3 tiers of government) and SEZs;

– Skills Development Strategies: to support the medium to long term skills needs in the regions;

– Infrastructure: provision of world class infrastructure;– Logistics: Effective and efficient logistics are the lifeblood of

any industrial development;

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7. Implementation _______________________________

– Business Incubation: to nurture domestic entrepreneurs and enterprises and value chain facilitation;

– Environmental Protection: appropriate measures taken to ensure sustainable industrialisation development and protection of environment;

– Technology, Research & Development: on going technological innovation;

– Quality and Productivity: continuous productivity and quality improvements to ensure our SEZs remain globally competitive;

– Effective participation of the 3 tiers of government in each province.

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8. Transitional arrangements _______________________________

1. Support for the development of new applications is being processed in terms of the current legislation but the principles of the new policy will be applied,

2. On-going financial support in partnership with National Treasury,

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9. Immediate Action Steps

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1. Finalisation of policy and legislative framework, beginning with public consultations in all provinces,

2. Identification of new SEZs in partnership with provinces,

3. Strengthening of current IDZs.

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10. Recommendations

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Select Committee provide support with respect to the provision of public inputs into the Policy and Bill in order to strengthen and improve the policy framework

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Thank you

Documents

Presentation to Select Committee on Trade and International Relations 15 February 2012