About 14 African nations have 'single-factory' SEZ programmes, notes SA’s Manufacturing Circle, which is lobbying government to permit the same here

By Mark Allix

ABOUT 14 African nations have "single-factory" 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.

However, one Mauritius-based 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 Co-operation 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-China Economic & Trade Co-operation Zone in the Chambishi copper belt region has run into controversy over accidents and labour rights, and the late former president Michael Sata pressured Chinese investors to adhere to Zambian regulations.

In SA, trade & industry minister Rob Davies says the SEZ Act does not change or override any existing national law, "and therefore both black economic empowerment and labour legislation apply in all designated zones".

The Saldanha IDZ is still in development stage but already has attracted interest from 19 potential investors, he says. The zone is aimed at serving oil and gas exploration and production companies on both the west and east coasts of Africa.

Western Cape economic opportunities MEC Alan Winde says as soon as the SEZ Act was promulgated in May last year, the IDZ became an SEZ, with all the benefits thereof. "No reapplication process was required. We will, however, continue to use the term IDZ," he says.

"We are currently in negotiations with investors in a range of subsectors including sub-sea fabrication, equipment servicing, vessel fabrication, specialist logistics and rig repair activities — but the names of investors are confidential," he says.

This will complement Operation Phakisa, government’s initiative to develop the economic potential of SA’s oceans.

Winde says the most important part of SEZ legislation is the customs controlled area. "While it is true that the 15% corporate income tax rate will benefit SA companies, cost is not a driving factor for international companies in the oil and gas services sector — ease of doing business is," he says.