Background

On the 23^rd of January, the Minister of Trade & Industry Dr Rob Davies gazetted the draft Special Economic Zones (SEZs) Bill for public comment. The bill is a welcome move as the government has acknowledged there has been a deficiency with the current Industrial Development Zones (IDZ) framework. The major issues which have been characteristic of the existing IDZs have been highlighted and steps have been outlined for dealing with these issues. Now what is left is the translation of the good ideas which are there on paper into practical action steps by the government and other related stakeholders.

Advantage of SEZs over IDZs

The SEZs approach promises to be an effective path for the country to take with regard to regional economic development. IDZs were created with an export orientated approach to economic development whereby investors would manufacture goods for export from these zones. SEZs on the other hand can be used for regional development purposes with firms not having to be necessarily geared toward exports. Rather than creating an IDZ and then looking for investors, the SEZs will be created on the basis of identified opportunities for a particular economic activity.

As an example, there are already talks by some participants in the Platinum industry for the development of platinum SEZ which would be focused on the beneficiation of platinum. Such a plan aligns with the New Growth Path’s drive for mineral beneficiation and will fall in line with the SEZ framework. Previously, the success of the IDZs was linked to the presence of an anchor tenant rather than having a large portfolio of investors from the onset. SEZs will bring a cluster approach to regional economic development where companies locate in an area knowing they can benefit from synergies of being close to firms operating in the same industry.

Lack of coordinated planning arrangements across government departments proved to be a major challenge for the existing IDZs. The SEZ bill aims on promoting a collaborative approach between different government departments. The Department of Trade and Industry has now been able to get Treasury to come to the party by committing to establish a SEZ fund which will be used to finance the development of the SEZs. South Africa’s IDZs have also not been able to attract the targeted investment due to lack of a coherent marketing strategy for the IDZs. Rather than marketing individual SEZs (as has been the case for the IDZs), the approach under the SEZ framework would most likely entail marketing the country as a whole and the offerings of existing SEZs.

Comparison with international best practice

In some countries, SEZs offer a very varied regulatory environment to other parts of the country i.e. With regards to the tax regime, foreign exchange remittances, labour etc. The SEZ bill aims on providing a wide range of support measures to firms established in zones. Given the bill is still in the draft form, there are no specific incentives which have been outlined so it is still too early to gauge how the bill compares with other international SEZs in this regard.

One of the differences between the South African SEZ bill and other international SEZ frameworks pertains to the labour component. Flexibility with regards to the labour employed in SEZs has not been built into the proposed South African bill. As with other international SEZs the South African bill aims on continuing with the one-stop shop approach for investors, which was being used under the IDZ framework. Investors will be able to avoid bureaucracy which is often linked with the process of registering a company and commencing operations.

South Africa’s SEZ has a leaning toward greater participation of the government in the operation of the SEZ which is different from international best practice. Although the government is involved in the setup of the zones, in other countries there is minimal involvement by government

Expected future global competitive nature of SEZs in South Africa

Due to the highly competitive business environment brought about due to globalization, South Africa’s SEZs need to play on the comparative advantage offered by the country. Instead of trying to compete in markets which are already highly contested, SA can target development of markets which are unsaturated.

The changing global economic landscape is seeing a shift from the traditional focus on the South supplying the North with raw materials and North selling finished products to the South. The drive toward value addition in South Africa and other developing economies is expected to place South Africa’s SEZs on a relatively competitive footing with international SEZs. This is especially the case for SEZs which were relying on obtaining relatively inexpensive resources (raw materials) from the developing economies.

With a collaborative approach (i.e. social contract) between government, business and labour, South Africa is expected to harness the benefit of being the economic powerhouse in Africa and also being part of the BRICS group in order to becoming a major manufacturing economy in the world.

A problem which South Africa currently sits with is the structure of the economy. The tertiary sector currently contributes more than 65 percent to the country’s GDP a structure which is characteristic of developed countries. South Africa’s high unemployment is mainly due to structural unemployment whereby there is a mismatch between the available skills in the country and the available jobs. Establishment of SEZs which are mainly geared toward manufacturing is expected to assist the country in reducing the unemployment levels.

Contact:

Samantha James
Corporate Communications Africa
P: +27 21 680 3574

F: +27 21 680 3296
E: samantha.james@frost.com

http://www.frost.com

The minister of Trade and Industry, Dr Rob Davies, announced the establishment of the holding company, Saudi Arabia South Africa Holding (Sasah), which would aim at creating opportunities in mining, petrochemicals and agriculture.

According to statistics from Trademap, in 2011 total South African Imports from Saudi Arabia amounted to $4.45 billion (R35.6 billion at R/$ of 8) of which 84.0 percent of the imports were for crude oil. South African exports to Saudi Arabia amounted to $360.5 million (R2.88 billion). This represents approximately R38 billion of trade between the two countries, estimates Frost & Sullivan.

“South Africa’s main exports to Saudi Arabia have been predominantly agricultural produce and metals”, states Chemicals Materials and Food Research Analyst Tatenda Zingoni, at global consulting firm Frost & Sullivan. “Fruits (with oranges being the main) accounted for 28.7 percent of total 2011 exports. Metals which encompasses ores, slag and ash, iron and steel along with aluminium and article of aluminium, contributed 38.6 percent of total exports”.

Saudi Arabia is South Africa’s fifth largest import source. China, Germany, USA and Japan are the top 4 import source regions. The top five import sources account for 42.1 percent of South Africa’s $41.9 billion 2011 imports. South Africa’s main export destinations were China, USA, Japan, Germany and the United Kingdom. These countries accounted for 41.0 percent of the countries destination of exports.

South Africa is the continent’s leading economy, with a 2011 Real GDP of $422.0 billion, and the services sector contributing 65.6 percent of the GDP. Although the country has a more developed industrial sector relative to other countries, the major exports of the country are still mainly primary products, and imports are predominantly value-added products. South Africa’s balance of trade, therefore, mirrors other African countries.

The collaboration between South Africa and Saudi Arabia is anticipated to see doubling of trade between the two countries in the coming five years, according to the Ministry of Trade and Industry.  

“South Africa needs to step up its value addition (beneficiation) of primary produce, such as food products, minerals and metals, in order to significantly benefit from the partnership with Saudi Arabia” concludes Zingoni.

Contact:

Samantha James
Corporate Communications Africa
P: +27 21 680 3574

F: +27 21 680 3296
E: samantha.james@frost.com

http://www.frost.com

The minister of Trade and Industry, Dr Rob Davies, announced the establishment of the holding company, Saudi Arabia South Africa Holding (Sasah), which would aim at creating opportunities in mining, petrochemicals and agriculture.

According to statistics from Trademap, in 2011 total South African Imports from Saudi Arabia amounted to $4.45 billion (R35.6 billion at R/$ of 8) of which 84.0 percent of the imports were for crude oil. South African exports to Saudi Arabia amounted to $360.5 million (R2.88 billion). This represents approximately R38 billion of trade between the two countries, estimates Frost & Sullivan.

“South Africa’s main exports to Saudi Arabia have been predominantly agricultural produce and metals”, states Chemicals Materials and Food Research Analyst Tatenda Zingoni, at global consulting firm Frost & Sullivan. “Fruits (with oranges being the main) accounted for 28.7 percent of total 2011 exports. Metals which encompasses ores, slag and ash, iron and steel along with aluminium and article of aluminium, contributed 38.6 percent of total exports”.

Saudi Arabia is South Africa’s fifth largest import source. China, Germany, USA and Japan are the top 4 import source regions. The top five import sources account for 42.1 percent of South Africa’s $41.9 billion 2011 imports. South Africa’s main export destinations were China, USA, Japan, Germany and the United Kingdom. These countries accounted for 41.0 percent of the countries destination of exports.

South Africa is the continent’s leading economy, with a 2011 Real GDP of $422.0 billion, and the services sector contributing 65.6 percent of the GDP. Although the country has a more developed industrial sector relative to other countries, the major exports of the country are still mainly primary products, and imports are predominantly value-added products. South Africa’s balance of trade, therefore, mirrors other African countries.

The collaboration between South Africa and Saudi Arabia is anticipated to see doubling of trade between the two countries in the coming five years, according to the Ministry of Trade and Industry.  

“South Africa needs to step up its value addition (beneficiation) of primary produce, such as food products, minerals and metals, in order to significantly benefit from the partnership with Saudi Arabia” concludes Zingoni.

Contact:

Samantha James
Corporate Communications Africa
P: +27 21 680 3574

F: +27 21 680 3296
E: samantha.james@frost.com

http://www.frost.com

Recent pronouncements by labour (Confederation of South African Trade Unions - COSATU) and some parts of business for the adjustment of the R/$ exchange rate to a rate of 9 or 10.5 have to be taken with caution. Though their arguments are somewhat warranted i.e. that the rand is overvalued (currently trading at around 7.5), stipulating a particular rate for which the rate should be pegged is not the solution.

South Africa's economic structure is currently heavily skewed with the tertiary (services) sector accounting for more than 55% of contributions to the GDP - with financial services ruling the roost. An attractive interest rate regime makes South Africa an attractive destination of portfolio investments. The large inflows and outflows of such funds account for a significant impact on the country's exchange rate.

Calls by labour to devalue the currency are mainly aimed at wanting to stimulate the export industry i.e. making South African exports less expensive. The hope is for an increase in the employment levels in the country. Currently the official unemployment figure is sitting slightly above 25%.

It should however be noted that due to the earlier mentioned structural imbalances, absorption of labour in South Africa is currently difficult. There is a large pool of un-skilled/semi-skilled labour which can not be matched with the economy's set up. South Africa is therefore mainly characterized by structural unemployment.

Calls for the devaluation of the currency would need intervention by the South African Reserve Bank (SARB) in the financial markets, which would mark a departure from existing policies. As it stands, the calls by labour and some parts of the business community are anticipated to remain just that...calls with no one answering.