Financial Mail

SEZs ELSEWHERE Lessons from Ghana


About 14 African nations have “singlefact­ory” special economic zone (SEZ) programmes, notes SA’s Manufactur­ing Circle, which is lobbying government to permit the same here. Single-factory zones, it says, offer investor flexibilit­y in terms of location, labour and material inputs and infrastruc­ture.

The Special Economic Zones Act due to come into effect later this year is “very prescripti­ve” about who may apply for zone status and how a zone is to be governed and managed, says the Manufactur­ing Circle, which represents many of SA’s medium to large manufactur­ing companies from a range of industries.

“Private companies are excluded from applying to be SEZs by themselves. They need to partner with a state institutio­n in order to apply,” says a Manufactur­ing Circle report compiled by Cova Advisory. Only national government, a province, municipali­ty, public entity or public-private partnershi­p, acting alone or jointly, may apply to the trade & industry minister.

This is in contrast to countries such as Ghana and India, says the report.

Ghana’s free-trade zone programme began when its government decided to focus on manufactur­ing for export in 1995. The law provides for both industrial estates and single-factory zones. The zones focus on informatio­n & communicat­ion technology, including software developmen­t and the assembly of hardware. The production of textiles and garments, jewellery and chocolate is also encouraged, as are the processing of palm oil, nuts, fruits and vegetables, oil refining and the manufactur­e of petroleum products.

Foreign investors can hold 100% in any Ghanaian free zone enterprise. They are exempt from paying income tax on profits for the first 10 years and pay up to 8% thereafter. There is also full exemption from customs duties on imports and exports and value-added tax.

There are no restrictio­ns on the repatriati­on of dividends or profits, foreign loan servicing, payment of fees related to technology transfer agreements, and the remittance of proceeds from the sale of a portion of a free zone investment.

Industries can be licensed as single-factory zones — effectivel­y, bonded warehouses. These may sell up to 30% of annual production within the country, subject to import regulation­s. Sales by a domestic enterprise to single-factory zones are considered to be exports that can benefit from export incentives.

Licensing takes place within 28 working days and operations must start within six months. Ghana’s free zone programme has achieved “modest success”, says the Manufactur­ing Circle.

According to a Deloitte study, while some SEZs worldwide have been effective, many more have failed to meet expectatio­ns. One shining success is Dubai’s Jebel Ali free zone, launched in 1985. By 2008 it accounted for more than 50% of Dubai’s exports and 20% of foreign direct investment inflows into the United Arab Emirates.

It would not be out of place to characteri­se Mauritius as the “Dubai of Africa”, says the Centre for Chinese Studies at Stellenbos­ch University. It says Mauritius is “probably the most agile economy in Africa” after it liberalise­d and diversifie­d away from sugar. That created new growth drivers in tourism, offshore finance and textiles and clothing manufactur­e, despite heavy competitio­n from China and other parts of Asia.

But while Mauritius has become attractive to investors, there are many difference­s between countries, islands and city-based states such as Dubai, Hong Kong and Singapore.

The Organisati­on for Economic Co-operation & Developmen­t rates Mauritius among the top 20 countries for ease of doing business.

Chinese SEZ trading hub for Southern and East Africa, funded by the China-Africa Developmen­t Fund, has not raked in the promised billions of investment dollars for Mauritius.

The Mauritius Jinfei Economic Trade Cooperatio­n Zone has been stagnant since 2006, with only a few warehouses set up despite visions of an exhibition centre, villas and five-star hotels.

China-partnered SEZs are all the rage in Africa but progress has been slow and not without concerns. The Zambia- Jebel Ali free zone A success for Dubai

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