6 years ago

South African Business 2017 edition

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South African Business is a unique guide to business and investment in South Africa. In addition to an up-to-date economic overview of the country, analyses of the main industrial sectors, plus profiles of the nine provincial economies, the 2017 edition of South African Business includes special features on key topical issues such as skills development and education, renewable energy and the REIPPPP programme, and trade with Africa.


SPECIAL FEATURE Special Economic Zones Transforming the way business is done. In 1750 the king and queen of Sweden invited skilled craftsmen from all over Europe to take up residence on their royal estate on the outskirts of Stockholm. The little cottages that were given to the experts still stand today, although they are no longer home to lace-makers, silk-weavers and cutlery creators. Today the idea of creating specialised areas in which new kinds of economic activity can thrive is popular, and various forms fall under the heading of Special Economic Zones (SEZs). Like King Adolf Fredrik and Queen Lovisa Ulrika, modern South African industrial planners want to create a model for manufacturing goods locally that will replace imports. South Africa is investing in SEZs as a major plank of its industrial development policy that seeks to attract new skills and develop new industries. SOUTH AFRICAN BUSINESS 2017 18

SPECIAL FEATURE Key goals behind the establishment of SEZs are: • to encourage industries to develop in clusters, leading to economies of scale, skills-sharing and easier access by suppliers • to create industrial infrastructure to promote investment • to promote cooperation between the public and private sectors • to use the zones as a launching pad for other plans to further development Apart from attracting foreign direct investment (FDI) and boosting employment, SEZs can also play a role in helping to add new sectors or sub-sectors to an economy. There is a cautionary aspect to the Swedish tale in that the scheme only worked as long as subsidies were available – but if SEZs are properly implemented there is no reason why they should not become selfsupporting in time. South Africa is targeting a variety of sectors in SEZs around the country, but there is a decided emphasis on beneficiation, mainly of minerals but also of agricultural products. There is a strong feeling that South Africa can do much more with the product of its soils – whether that be using manganese to convert iron into steel or creating fruit juices out of apples and pears. Special Economic Zones are created in terms of the Special Economic Zones Act of 2014 (Act 16 of 2014). The act defines an SEZ as "geographically designated areas of the country that are set aside for specifically targeted economic activities, and supported through special arrangements and systems that are often different from those that apply to the rest of the country". Lower corporate tax rates and duty-free imports are among the advantages that accrue to investors. SEZs come in different forms: South Africa has several existing Industrial Development Zones (IDZs) and a Free Trade Port (FTP). The Coega IDZ (Nelson Mandela Bay Metropole) and the Dube TradePort at the King Shaka International Airport outside Durban are two well-known examples. Other licensed IDZs are at Saldanha Bay, East London and Richards Bay. The Dube TradePort aims to leverage its proximity to an airport. In the same way, "aerotropolis" developments are mooted for Ekurhuleni (OR Tambo airport) and Cape Town International Airport. Coega IDZ has recently attracted huge investments from a variety of Chinese firms in the engineering, solar manufacturing and automotive sectors. The latest investment is from BAIC, who will take a 65% stake in a multi-billion-rand joint venture with the Industrial Development Corporation with the intention of producing 100 000 vehicles. First Automotive Works (FAW) has already established a R600-million assembly plant in Zone 2 at Coega. Richards Bay, apart from being the country's main site for the export of coal, is also a registered Industrial Development Zone and consequently is in a position to attract investors in a range of sectors. Recent developments at RBIDZ have seen an investment in an oil and gas facility and it is hoped that the ocean will yield finds of gas to provide cheap feedstock. Another type of SEZ is an Export Processing Zone (EPZ). All of these interventions are intended to form part of broader trade and investment plans such as the National Development Plan (NDP) and the Industrial Policy Action Plan (IPAP). The NDP is a broad-strokes plan that seeks to coordinate development in a range of sectors, and promotes ambitious infrastructural projects. South Africa's most recent IPAP has a manufacturing focus, so beneficiation fits well into the idea of diversifying and strengthening the country's ability to make things. In the context of the new and burgeoning renewable energy sector, the state, through the Department of Trade and Industry (dti), can pass legislation that requires developers to increase the level of local content on the solar panels or wind turbines that are used. In this way, a totally new local industry can be created; and an SEZ would be the place to do it. Skills transfer is another stated aim behind the SEZ programme. Various incentives are available to investors in an SEZ. These include tax breaks from the South African Revenue Service (SARS), subsidised interest rates from the Industrial Development Corporation (IDC), subsidies for employees earning below a certain level and subsidies for the training of the workforce, incentives and grants from the dti, and incentives available from national electricity utility Eskom. Other benefits might include a building 19 SOUTH AFRICAN BUSINESS 2017

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