Financial Mail

New SEZs a bold step into the past


even years before Mauritius became independen­t in 1968, Nobel prize-winning economist James Meade wrote scepticall­y about whether the country could improve its standard of living, concluding “the outlook for peaceful developmen­t is weak”. Seemingly to prove him wrong, Mauritius has grown at a rate of more than 5% for almost 40 years. Mauritians have increased their per capita income from less than US$400/year around the time of independen­ce to more than $9 000 today.

It’s now the third-richest country on a per capita basis in Africa, but notably is the only one of the top group without any grand mineral endowment in the form of oil, diamonds or gold.

Moreover, as economist and Nobel prize winner Joseph Stiglitz noted a few years ago, it has built a diverse economy, a democratic political system and a strong safety net. School and university are free, health care is largely free and home ownership is now around 90%. Mauritius is on the verge of full employment.

At the heart of the economic success of Mauritius has been its very innovative Export Processing Zone (EPZ) system. The zone was establishe­d very early in global terms, launching in 1970. It began with only five enterprise­s, but now has over 1 000 which are responsibl­e for more than half the country’s exports.

The establishm­ent of the EPZ is remarkable in many respects. It was establishe­d by a strongly socialist government, but from the start, its benefits were generous. For example, there is no designated area; the “zone” constitute­s effectivel­y the whole island. There is a generous flat tax rate, which has remained absolutely stable. As is so often the case, the first companies were in the textile industry, but now they are widely spread across a variety of sectors.

But the chief utility of the EPZ was the developmen­t of a culture of business friendline­ss. Official bodies boast that Mauritius is in the top ranks of a whole host of “ease of doing business” surveys and is easily the best in Africa. The EPZ notion is really now fading into a kind of irrelevanc­e; it’s just the way the country works. The country is now focused on new ideas, like free ports, regional head-office incentives and residency investment schemes.

Partly because of the Mauritian success, a host of countries in Africa and elsewhere have tried to establish EPZs, or something like them. Many have failed or have had marginal success. SA joined the throng in the early 2000s, developing what were then called industrial developmen­t zones, of which Coega was the main flag-bearer. The zones showed extremely slow progress, mainly because what they offered was really minimal. Faced with a decade of failure, government is updating the schemes, with new legislatio­n offering better incentives. The main improvemen­ts are a lower tax rate, now more or less the worldwide accepted rate.

Yet, like an addict never quite able to relinquish its vices, the new legislatio­n, the Special Economic Zones Act (SEZ Act), falls short. The legislatio­n fails in three key areas. First, most zones around the world include increased labour flexibilit­y. SA’s most emphatical­ly do not.

Perhaps that is just too much to ask for. But the second failure is not. It is commonplac­e that the business voice on the body that manages the zone should be influentia­l. The SEZ Act makes provision for a single business person on the 15-person special economic zones advisory board. Sitting opposite this one, lonely business voice will be four government officials, three quasigover­nment officials, a labour representa­tive and a community representa­tive, among others. But the worst part of the legislatio­n is that applicants cannot be private companies acting alone. Companies can apply only in conjunctio­n with government entities, parastatal­s and public-private partnershi­ps.

If anything underlines the enduring antipathy of government to private enterprise, it is this.

Consequent­ly, the SA government is effectivel­y offering substantia­lly less than Mauritius was offering 40 years ago. This helps to explain the rather sad welcome that the legislatio­n has received from business organisati­ons; it’s better, but a long way from good.

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