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Presentation to Portfolio Committee on Trade and Industry

25 January 2012

SPECIAL ECONOMIC ZONES POLICY & BILL, 2011

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Name Designation

Mr. Lionel October Director General

Mr. Tumelo Chipfupa DDG: The Enterprise Organisation

Mr. Kaya Ngqaka Chief Director: Special Projects

Mr. Alfred Tau Chief Director: Regional Development

Mr. Clement Manoko Chief Director: Marketing and Communication

Ms. Antoinette Baepi Director: Industrial Development Zones

Mr. Warren Smith Deputy Director: Industrial Development Zones

Prof. Paul Benjamin Cheadle Thompson and Haysom Attorneys Inc

Mr. Bongani Lukhele Deputy Director: Media Liaison

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 has been invited by the Parliamentary Portfolio Committee on Trade and Industry to an initial briefing on the Special Economic Zones Policy and Bill; •Public Participation on the SEZ Bill are planned countrywide

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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 Africa

3. The IDZ Programme

4. Review of the IDZ Programme

5. Challenges with current IDZ Programme - The review findings

6. New SEZ Policy Thrust

7. Implementation

8. Transitional Arrangements

9. Immediate Action Steps

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

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

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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

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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

• DTI contribution to Dec 2011: R5, 3 billion

• Coega: R3, 8 bn; ELIDZ: R1, 4 bn and RBIDZ: R152 m

• 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

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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

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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: Favoured only the few regions which are close to

an international airport or seaport,

5.2 Nature of support: Emphasis on infrastructure while ignoring other critical support such as logistics, marketing, skills, etc

5.3 Ad-hoc planning: No long-term planning and poor coordination among IDZs with respect to strategic development and investments,

5.4 Financing: Ad-hoc financing arrangements made long-term planning impossible,

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5. Challenges with the existing IDZs Programme

_______________________________ 5.5 Inadequate targeting of investments: Insufficient

coordination among IDZs and lack of unique value proposition

5.6 Governance arrangements: Roles and responsibilities of key stakeholders not well defined leading to delays in decision-making and implementation,

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

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6. The New SEZ Policy and Legislative Thrust

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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

– Revamping and strengthening the support system for SEZs to make them effective tools for industrial development.

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6. The New SEZ Policy and Legislative Thrust

_______________________________ 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. The New SEZ Policy and Legislative Thrust

_______________________________ 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. The New SEZ Policy and Legislative Thrust

_______________________________ 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. The New SEZ Policy and Legislative Thrust

_______________________________ 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

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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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1. Portfolio 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