SEZs as vehicles of transformation
TOMORROW President Cyril Ramaphosa and Trade and Industry Minister Rob Davies will launch South Africa’s latest Special Economic Zone (SEZ) in Atlantis in the Western Cape. This will bring the number of SEZs in South Africa to nine, with two additional SEZs, in the North-West and Mpumalanga, still under consideration.
SEZs are a key pillar of South Africa’s economic policy and are designed to offer investors an attractive package of tax incentives, world-class infrastructure and efficient supply-chain logistics.
In so doing, South Africa provides a compelling investment case for both foreign and domestic investors.
However, South Africa’s SEZs have the additional objective of leveraging investments into under-developed areas. This is crucial, as investors tend to agglomerate around their most lucrative market, which for many investors would be Johannesburg, eThekwini or Cape Town.
Unchecked, such investor patterns would almost certainly lead to increased migration, and infrastructure bottlenecks in “recipient” locations.
Moreover, the “donor” locations – without a critical mass of industrial investment to sustain infrastructure investment and new employment – would likely fall even further behind the three major metros.
Over time this could erode the financial underpinnings of municipalities and undermine municipalities’ ability to invest in business infrastructure, thereby ironically reinforcing the under-development characteristics of these areas.
By locating SEZs in areas such as East London, Coega and Atlantis, the government aims to provide worldclass infrastructure in under-developed areas, and thereby encourage firms to locate in these areas.
Of course, we are mindful that investors take many factors into account when deciding on the location for an investment, but we are convinced that through careful use of the SEZ programme we can contribute to levelling the playing field for municipalities in under-developed areas.
This has certainly been the experience in the Coega SEZ which, through high-quality infrastructure provision and intensive investor promotion, has secured 42 investments which are valued at just more than R7 billion. More importantly, this SEZ has created 100 000 permanent and temporary jobs, including construction jobs, since its inception.
The impact of sustained infrastructure investment in the SEZs by all three tiers of the government over the past 18 years has also provided an important stimulus to the Eastern Cape economy as a whole, especially in the past two to three years when economic growth was disappointing.
With investor sentiment strengthening as a result of President Ramaphosa’s intensive engagement with investors, South Africa’s SEZs – including the newest, Atlantis SEZ – are ready to play their part in meeting Ramaphosa’s investment target of $100bn (R1.37 trillion) and contribute to transforming South Africa.
Stephen Hanival is the chief economist at the Department of Trade and Industry.