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Experts slam special economic zones

Johannesburg – Draft legislation on special economic zones is duplicating the mistakes made in respect of Coega, the East London zone, Richards Bay and the OR Tambo zone, believes a think tank that includes international experts.

The draft legislation that Trade & Industry Minister Dr Rob Davies wants to submit to parliament misses an opportunity to rectify the mistakes made in respect of the country’s previous four zones, says Jean-Paul Gauthier, one of the world’s foremost experts on special economic zones.

Special economic zones are globally regarded as a powerful stimulant for a country’s export capacity and an experimental terrain for economic development and growth. China’s development, for instance, began in the 1980s with many such zones being created on its east coast.

Today there are some 3 000 such zones in developing countries.

The main reason for Gauthier’s criticism is that government officials will still drive the zones and the draft legislation automatically assumes support from the private sector.

The fact that government is unable to stimulate private-sector interest in its zones has totally discredited the approach of government exclusively regulating, developing and operating the zones, said Gauthier during a round table conference which included 42 local and international experts. He is deputy secretary general of the World Economic Processing Zones Association.

Another reason for the failures is that the zones  offer no competitive advantage and their business environments in no way differ from those elsewhere in the economy.

On a list of nine advantages encountered in special zones in other parts of the world, only two are relevant in South Africa: conditional exemption from import duty and zero VAT rating.

Special economic zones must be special. What the zones offer depends on what they are intended for, says the report put together for the round table conference.

A participant in this meeting, Simphiwe Kondlo, the chief executive of the East London zone, issued a warning against government marketing the zones in terms of the new legislation as true special economic zones.

The zones offer investors nothing, he said. They are no different from ordinary private industrial parks because there are absolutely no incentives from government, said Kondlo at the meeting.

The only advantage of the East London zone is that it is right beside Mercedes-Benz’s assembly plant and Mercedes has asked its suppliers to move there.

Government has already spent R5.3bn on Coega, East London and ¬Richards Bay. In so doing it drew R11.3bn worth of investment and created 33 000 jobs, but these were mainly short-term positions in the building industry.

None of those involved consider it a success, declares the report.

Claude Baissac, secretary-general of the World Economic Processing Zones Association, reckons some zones in South Africa should focus on labour-intensive industries for low-skilled workers – such as textiles and footwear – and on other industries in which medium skills are used.

Labour regulation was discussed in depth. Nedbank chief economist Dennis Dykes said that it was not that labour was too expensive, but that there were too many concerns deterring investors.

But high public service wages compared with those in the private sector are distorting the labour market for small businesses.

The international experts pointed out that wages in such zones are often higher than in the rest of the country because productivity in the zones is usually higher.

 - Sake24

For more business news in Afrikaans, go to Sake24.com.

 
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