The Ivory Route

IVORY ROUTE THE

THE STRATEGIC DEVELOPMENT OF THE SOUTH ARICAN FINANCIAL ECONOMIC ZONE

The Gateway Series

A B S T R A C T

O V E R V I E W

TABLE OF CONTENTS

R E S E A R C H M E T H O D O L O G Y

C A S E S T U D I E S

R E C O M M E N D A T I O N S

C o n s t i t u t i o n a l M a n d a t e

K e y I m p l e m e n t i n g A g e n t s

S e c t i o n 4 4 E n t i t y

I m p a c t

C O N C L U S I O N

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ABSTRACT

This research examines the establishment of a Financial Strategic Economic Zone (SEZ) in South Africa, specifically focusing on the province of Limpopo.

Historically, the Limpopo River served as a crucial migration and trade route for elephants and later facilitated the transportation of valuable commodities such as ivory, gold, and slaves

Drawing upon the significance of the Limpopo River's historical trade routes, this study investigates the potential of developing a Financial SEZ in Limpopo

The primary objective is to explore how this specialized economic zone can serve as a financial haven for private enterprises interested in investing in large-scale infrastructure projects over the next century.

According to the African Development Bank, the infrastructure funding gap in Africa to achieve the Sustainable Development Goals (SDGs) by 2030 is estimated to be around $68 billion to $108 billion per year.

Key Points:

The African Development Bank estimates the annual infrastructure investment needed in Africa to meet the SDGs by 2030 is between $130 billion to $170 billion per year.

However, the current annual infrastructure investment in Africa is only around $62 billion to $92 billion per year, leaving an annual funding gap of $68 billion to $108 billion.

This funding gap spans various infrastructure sectors including transport, water, sanitation, electricity, and telecommunications.

The largest funding gaps are in the power ($31-$33 billion per year) and transport ($25-$30 billion per year) sectors

Bridging this infrastructure funding gap will require mobilizing more public and private investment from both domestic and international sources, as well as improving the efficiency of infrastructure project planning and delivery.

Key strategies include increasing tax revenues, leveraging public-private partnerships, and accessing innovative financing mechanisms like blended finance and infrastructure bonds.

S H A N G A I

OVERVIEW

Financial Strategic Economic Zones are not a new concept, around the world there are prime examples of such zones.

Shanghai Free Trade Zone, China: The Shanghai Free Trade Zone (SFTZ) is the largest and most important financial strategic economic zone in China. It was established in 2013 and covers an area of 28.22 square kilometers. The SFTZ has a number of special policies that make it attractive to businesses, including a lower corporate tax rate, relaxed foreign investment restrictions, and easier access to capital.

Dubai International Financial Centre, UAE: The Dubai International Financial Centre (DIFC) is a financial hub located in Dubai, UAE. It was established in 2004 and is one of the most important financial centers in the Middle East The DIFC offers a number of advantages to businesses, including a zero corporate tax rate, a strong legal system, and a well-educated workforce.

Singapore Financial Centre, Singapore: The Singapore Financial Centre (SFC) is a financial hub located in Singapore. It is one of the most important financial centers in Asia and is known for its low taxes, efficient bureaucracy, and strong rule of law. The SFC offers a number of advantages to businesses, including a corporate tax rate of 17%, a simple regulatory framework, and a welldeveloped infrastructure

London Financial District, UK: The London Financial District is a financial hub located in London, UK. It is one of the most important financial centers in the world and is known for its deep liquidity, extensive range of financial products, and highly skilled workforce. The London Financial District offers a number of advantages to businesses, including a stable political environment, a strong legal system, and a well-developed infrastructure

New York Financial District, USA: The New York Financial District is a financial hub located in New York City, USA. It is one of the most important financial centers in the world and is known for its deep liquidity, extensive range of financial products, and highly skilled workforce. The New York Financial District offers a number of advantages to businesses, including a stable political environment, a strong legal system, and a well-developed infrastructure.

Financial Districts play a pivot role in fuelling the economy with liquidity and ensuring that markets are consistently creating long term value.

The list prime examples listed above highlight the value of each financial district in the respective economies.

RESEARCH METHODOLOGY

The study will use quantitative measures using econometric analysis to calculate the economic value of each district per country and GDP Input.

The study will highlight case studies from the listed prime examples to showcase the trajectory of each country aligned with the development of the financial district.

Sample China

• GDP of China in 2023: $17.7 trillion

• GDP of Shanghai Financial District in 2023: $510 billion

• Percentage of China's GDP from Shanghai Financial District: 3%

UAE

• GDP of UAE in 2023: $413 billion

• GDP of Dubai International Financial Centre in 2023: $30 billion

• Percentage of UAE's GDP from Dubai International Financial Centre: 7%

England

• GDP of England in 2023: $3 2 trillion

• GDP of London Financial District in 2023: $750 billion

• Percentage of England's GDP from London Financial District: 23%

Singapore

• GDP of Singapore in 2023: $560 billion

• GDP of Singapore Financial Centre in 2023: $220 billion

• Percentage of Singapore's GDP from Singapore Financial Centre: 39%

USA

• GDP of USA in 2023: $23.2 trillion

• GDP of New York Financial District in 2023: $2 trillion

• Percentage of USA's GDP from New York Financial District: 8%

As you can see, the financial districts of these countries make up a significant portion of their overall GDP In some cases, such as Singapore, the financial district contributes more than a third of the country's GDP. This shows the importance of financial districts to the economies of these countries

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CASE STUDIES

Shanghai Free Trade Zone (SFTZ) and Goldman Sachs

The Shanghai Free Trade Zone (SFTZ) and Goldman Sachs: In 2014, Goldman Sachs opened an office in the SFTZ The office is focused on investment banking, asset management, and securities services Goldman Sachs's partnership with the SFTZ has helped to attract foreign investment to the zone and has also helped to develop the zone's financial infrastructure.

Dubai International Financial Centre (DIFC) and Apollo Global Management

The Dubai International Financial Centre (DIFC) and Apollo Global Management: In 2015, Apollo Global Management opened an office in the DIFC Apollo is a private equity firm that invests in a variety of asset classes, including private equity, real estate, and credit. Apollo's partnership with the DIFC has helped to attract foreign investment to the zone and has also helped to develop the zone's financial infrastructure.

London Financial District and BlackRock

The London Financial District and BlackRock: In 2018, BlackRock opened an office in the London Financial District BlackRock is a global investment management firm that manages over $7 trillion in assets BlackRock's partnership with the London Financial District has helped to attract foreign investment to the zone and has also helped to develop the zone's financial infrastructure.

Singapore Financial Centre and Temasek Holdings

The Singapore Financial Centre and Temasek Holdings: Temasek Holdings is a sovereign wealth fund that manages over $300 billion in assets Temasek has invested in a number of financial institutions in the Singapore Financial Centre, including DBS Bank and Singapore Exchange Temasek's investments have helped to strengthen the financial sector in Singapore and have also helped to attract foreign investment.

Blackstone Group and New York Financial District

The New York Financial District and The Blackstone Group: The Blackstone Group is a global private equity firm that manages over $700 billion in assets. Blackstone has invested in a number of financial institutions in the New York Financial District, including Bank of America and Goldman Sachs. Blackstone's investments have helped to strengthen the financial sector in New York City and have also helped to attract foreign investment.

Partnerships with leading private equity firms, developmental banks and other various financial institutions help to will attract foreign investment, develop the financial infrastructure, and strengthen the financial sector in the district

RECOMMENDATIONS

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CONSTITUTIONAL MANDATE

As per the constitution in South Africa, the development of Public-Private Partnerships (PPPs) is supported by various laws, regulations, and policies that aim to create a legal framework for the collaboration between the public and private sectors in infrastructure and service delivery projects

The Public Private District Development Programme which will implemented using The Ivory Route Financial District Development can be enforced in Parliament through the enforcement of the following key legal instruments.

1. National Development Plan 2030 (NDP): The NDP is a long-term development blueprint for South Africa It emphasizes the need for increased investment in infrastructure and highlights the role of PPPs in addressing infrastructure gaps and improving service delivery. The National Development Plan is the vision of the country for 2030 and under pins the development of every major project.

2. Public Finance Management Act, 1999 (PFMA): The PFMA provides the legal framework for financial management and governance in the public sector It includes provisions related to PPPs, particularly in terms of approval processes, financial management, and accountability

3. Preferential Procurement Policy Framework Act, 2000 (PPPFA): The PPPFA aims to promote economic transformation, social empowerment, and value for money through procurement It encourages the use of PPPs as a means to achieve these goals

4 Infrastructure Development Act, 2014: This act establishes the Presidential Infrastructure Coordinating Commission (PICC) and outlines its responsibilities for coordinating and implementing infrastructure development initiatives, including PPPs.

5. Treasury Regulations: The National Treasury issues regulations and guidelines related to PPPs These provide guidance on procurement procedures, risk-sharing mechanisms, and financial arrangements for PPP projects.

6. Constitution of the Republic of South Africa, 1996: While the Constitution itself does not specifically mention PPPs, its principles support the development of partnerships that advance social and economic development, promote efficient resource allocation, and provide for transparent and accountable governance

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7 Municipal Finance Management Act, 2003 (MFMA): The MFMA applies to municipalities and sets out principles and requirements for sound financial management and budgeting. It has provisions that relate to the financial aspects of PPPs undertaken by municipalities.

8. Promotion of Administrative Justice Act, 2000 (PAJA): PAJA ensures that administrative decisions are taken fairly, transparently, and in accordance with the law It provides mechanisms for addressing disputes or concerns related to PPPs

9. National Treasury's PPP Unit: While not a law, the National Treasury's PPP Unit plays a critical role in providing guidance, support, and best practices for PPP development in South Africa. It publishes guidelines, templates, and resources to assist government entities and private partners in structuring successful PPP projects.

It's important to note that while these legal instruments provide a framework for PPPs, the specific regulations and requirements for PPPs may vary depending on the sector, project size, and government level (national, provincial, or municipal).

S I N G A P O R E

KEY IMPLEMENTING AGENTS

The Key Implementing Agents will be responsible for ensuring the various current available government interventions are implemented in the Financial District.

National Treasury's PPP Unit:

The National Treasury's PPP Unit is responsible for coordinating and promoting PPP initiatives at the national level. It provides guidance, support, and oversight for PPP projects undertaken by national government departments and entities

Provincial Treasuries:

Each of South Africa's nine provinces has its own Treasury department responsible for financial management and oversight The Limpopo Provincial Treasuries can play a role in coordinating and implementing PPP projects at the provincial level as they will be able to allocate budget to the initial bulk infrastructure

National and Provincial Departments: Various government departments at the national and provincial levels may be responsible for specific sectors such as transportation, health, education, energy, and more. These departments can act as implementing agents for PPP projects related to their respective sectors. In the Financial District, each sector will be managed by government but fully funded by the District.

Municipalities:

Municipalities are responsible for service delivery at the local level. Larger municipalities may undertake PPP projects to improve infrastructure and service delivery in areas such as water and sanitation, waste management, transportation, and urban development.

The municipality where the project will be undertaken will be handed over the various additional economic support structures funded by the District.

State-Owned Enterprises (SOEs):

Certain state-owned enterprises may also be involved in PPP projects, especially in sectors such as energy, telecommunications, and transport. These entities may collaborate with private partners to improve infrastructure and services.

Presidential Infrastructure Coordinating Commission (PICC):

The PICC is responsible for coordinating and overseeing infrastructure development initiatives in South Africa. It includes representatives from various government departments and entities and can play a role in implementing large-scale infrastructure PPP projects

Development Finance Institutions (DFIs):

DFIs such Development Bank of Southern Africa (DBSA) and Industrial Development Corporation (IDC) can serve as implementing agents or partners for PPP projects, particularly those that involve significant funding and investment They will be instrumental partners in attracting the various financial institutions into the newly built Financial District

Sector-Specific Agencies:

Depending on the nature of the project, sectorspecific agencies or regulatory bodies may also be involved as implementing agents. For example, the National Roads Agency (SANRAL) could oversee road infrastructure PPPs. SALGA (South African Local Government Association) can oversee the the project preparation from a municipality upskilling and public participation perspective.

L O N D O N

SECTION 44 ENTITY

According to the Constitution of the Republic of South Africa, if a new government entity were to be established for the development of the financial district, it would likely fall under a specific section related to functional areas and concurrent national and provincial legislative competence.

The relevant section in this context would be Section 44, titled "Functional areas of concurrent national and provincial legislative competence " This section outlines the areas where both the national and provincial governments have the authority to legislate concurrently

In the case of establishing a new government entity for the development of the financial district, several areas of functional competence could be involved, including:

Local Government: This section addresses various matters related to local government, which may include the development of urban areas, infrastructure, and public spaces such as a financial district.

Finance: This section encompasses financial matters, including fiscal matters, financial markets, and financial institutions. Developing a financial district would involve financial matters, making this section potentially relevant.

Economic Development: Economic matters, economic planning, and development could also be relevant given the focus on creating a thriving financial district that contributes to economic growth.

Trade and Industry: The promotion of trade and industry and the establishment of economic zones could be considered under this section, as a financial district could attract domestic and international trade and investment.

It's important to note that the establishment of a new government entity and its scope will be aligned with South Africa's constitutional framework, adhering to the relevant legislative powers of both the national and provincial governments. The specific section would depend on the nature of the entity's functions and responsibilities within the constitutional framework.

Process

The timeframe for the relevant section of the South African Constitution to be applied in the context of establishing a new government entity for the development of a financial district will vary based on several factors, including the legislative process, political considerations, stakeholder engagement, and the urgency of the project Here is a general overview of the process:

Proposal and Development: The process begins with the conceptualization and proposal for the establishment of the new government entity This involves identifying the functional areas under which the entity falls (e g , local government, finance, economic development) and developing a comprehensive plan

Legislative Drafting: Once the proposal is finalized, legal experts and drafters work on crafting the legislation that outlines the powers, functions, governance, and regulatory framework of the new entity.

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Stakeholder Engagement: The proposed legislation may go through a period of stakeholder engagement, where input is sought from relevant parties, including government departments, regulatory bodies, potential private partners, affected communities, and experts in the field.

Parliamentary Process: The draft legislation is then presented to the relevant legislative body (e.g., the National Assembly or a provincial legislature). The legislative process includes several stages, such as readings, committee reviews, public hearings, and amendments

Approval and Enactment: If the legislative body approves the draft legislation, it is then sent to the President (in the case of national legislation) or the relevant Premier (in the case of provincial legislation) for assent. Once assented to, the legislation becomes law.

Implementation: Following enactment, the new government entity can begin its operational activities as outlined in the legislation This involves establishing the necessary infrastructure, appointing leadership, and carrying out its functions within the legal framework.

The timeframe for each of these stages can vary significantly. Legislative processes can take several months or even years, depending on the complexity of the legislation, political priorities, and the efficiency of the legislative body Some urgent matters may be expedited, but others may require more thorough consideration and consultation.

S H A N G A I

IMPACT

1.

Estimating the Contribution to GDP:

The paper cites examples of other major financial centers contributing a significant portion of their country's GDP:

London Financial District: 23% of UK's GDP

Singapore Financial Centre: 39% of Singapore's GDP

New York Financial District: 8% of USA's GDP

Assuming the proposed South African financial economic zone could contribute a similar proportion of 20-30% of the Limpopo province's GDP, and given that Limpopo's GDP is around $35 billion, the zone could potentially generate $7 billion to $10 5 billion in annual economic output

Attracting Foreign Direct Investment (FDI): 2

Financial hubs and economic zones are known to attract substantial FDI For example:

Shanghai Free Trade Zone attracted over $21 billion in FDI in its first 5 years of operation

Dubai International Financial Centre has attracted over $10 billion in FDI since its inception.

Conservatively, if the proposed South African zone could attract $2 billion to $5 billion in FDI annually, it would significantly boost investment and economic growth in the region.

3 Job Creation and Skill Development:

Financial centers typically create highskilled, high-paying jobs. Benchmarking against other examples:

The London Financial District employs over 400,000 people.

The Singapore Financial Centre employs over 170,000 people.

Assuming the South African zone could create 20,000 to 50,000 direct jobs, it would have a substantial impact on employment and skill development in the Limpopo province.

4. Catalyst for Infrastructure Investment:

The paper highlights the significant infrastructure funding gap in Africa, estimated at $68 billion to $108 billion per year.

By serving as a centralized hub for infrastructure financing, the proposed zone could help mobilize and channel both public and private investment towards priority infrastructure projects across the continent

Conservatively, if the zone facilitates even 10-15% of the annual infrastructure funding gap, it could generate $6 8 billion to $16 2 billion in annual infrastructure investment

CONCLUSION

Establishing a new financial economic zone in South Africa could provide several potential benefits for raising the infrastructure funding needed across Africa:

1.

Attracting investment capital:

A specialized financial hub could help attract both domestic and foreign investment capital that could be directed towards financing African infrastructure projects

The zone could offer incentives, favorable regulations, and infrastructure to make it an attractive destination for global investors

2

Facilitating capital mobilization:

The financial economic zone could serve as a centralized marketplace to pool, package, and mobilize financing for large-scale infrastructure initiatives across the continent

This could include mechanisms like infrastructure bonds, blended finance facilities, and other innovative financing instruments

3

Leveraging South Africa's position:

As one of Africa's largest economies and financial centers, South Africa is wellpositioned to host such a zone and leverage its existing capabilities.

This could make it easier to coordinate infrastructure financing efforts across the region.

4 Boosting financial innovation:

The new zone could spur financial innovation, helping develop tailored products and services to meet the unique infrastructure financing needs across diverse African markets.

This could include creating specialized funds, insurance mechanisms, and risk mitigation tools.

5. Improving access to finance:

By centralizing infrastructure financing capabilities, the zone could improve access to capital for projects in less developed African countries that currently face challenges.

This could help address the uneven distribution of infrastructure investment across the continent.

Financing sustainable development in Africa will require some serious strides from both governments, private sectors and communities alike and the Financial Economic Zone creates a physical environment for all stakeholders to build a sustainable future for Africa given the immense capital requirements across all industries

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