Special Economic Zones

Promoting industrial development via incentives.

South Africa is investing in Special Economic Zones (SEZs) as a major plank of its industrial development policy. A range of incentives are available to attract new skills and develop new industries.

Key goals behind the establishment of SEZs

• 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 subsectors to an economy.

South Africa is targeting a variety of sectors in SEZs around the country, but there is a emphasis on beneficiation, mainly of minerals but also agricultural processing. 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 SEZs 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.

The most recently licensed SEZ is the Musina-Makhado SEZ in Limpopo, where the facility’s strategic location on the border with Zimbabwe is allied to the strong mineral resource in the surrounding countryside.

Other licenced 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 International Airport) and Cape Town International Airport.

Coega IDZ has attracted huge investments from a variety of Chinese firms in the engineering, solar manufacturing and automotive sectors. This includes an investment from Beijing Automobile Corporation (BAIC) which took 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 a R600million assembly plant in Zone 2 at Coega.

Richards Bay (pictured), apart from being the country’s main site for the export of coal, is also a registered Industrial Development Zone (IDZ) 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.

The Maluti-A-Phofung Special Economic Zone takes advantage of the strategic position Harrismith holds in the Free State’s northeastern corner. The N3 highway carries huge volumes of cargo between Gauteng and the ports of KwaZulu-Natal so it is logical that the first focus of this SEZ is logistics.

Plans are far advanced for the official recognition of an SEZ at Upington in the Northern Cape. The 400ha site of the Upington SEZ is close to the regional airport and is well served by access roads. One of the goals is to capitalise on the existing solar power industry by promoting special investment packages to investors in that field, and encouraging the development of skills and services to support that sector within the SEZ.

Another type of SEZ is an Export Processing Zone (EPZ). All of these interventions are intended to form of broader trade and investment plans such as 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.

Specific incentives relating to energy savings and reductions in environmental impact are available, both from Eskom and the dti. Within the dti’s Manufacturing Competitiveness Enhancement Programme, there is a Green Energy Efficiency Fund, all of which are designed to make investment more attractive.

PROFILE Upington Special Economic Zone

More than 500 hectares of prime land is available for investors.

Upington, the second-biggest town in the Northern Cape, is located along the banks of the Orange River and is a popular tourist destination with warm weather and long sunny days. The Northern Cape is ideally situated to serve the following industries: solar energy, mining, agricultural, aviation and other industries. The Upington SEZ has a geographically designated area set aside for specifically targeted economic activities to accelerate industrial development.

In the heart of the Green Kalahari, right next to Upington International Airport, there is more than 500ha of prime land available to be utilised by investors (440ha for the Industrial Park and 85ha for the Aviation Park).

Upington is situated 130km from the Namibian border post and about 350km from the border post to Botswana. Upington also has good access roads such as the N10 and the N14, effectively linking up Namibia and Botswana.

The Upington International Airport has a 5km-long runway, the longest civilian runway in the southern hemisphere. The airport’s location and the dry, arid climate add to making the location particularly favourable for the establishment of an Aviation Park to serve the global markets.

The Dawid Kruiper Local Municipality (DKLM) has made the land available for the development of the Upington SEZ. The development will be divided into seven phases. The ZF Mgcawu District has a well-developed economy and active business community supported by government and government parastatals.

Industrial hub The main objective for the proposed Upington SEZ in the Northern Cape Province is to establish a worldclass industrial hub to service the Southern African Development Community (SADC) region in the following sectors: • Renewable energy with the focus on solar component manufacturing • Aeronautics through the development of an Aviation Park • Mineral beneficiation • Agro-processing • Astronomy exploration • High-value micro technology.

Together with our partners, the Northern Cape Economic Development Trade and Investment Agency (NCEDA), the Northern Cape Department of Economic Development and Tourism, the National Department of Trade and Industry (dti) and the Airports Company South Africa (ACSA), we invite all interested investors to contact us.

KEY CONTACTS

Mr Thobela Dikeni, Chief Executive Officer, NCEDA Tel: +27 53 833 1503 and 060 997 7202 Babalwa Mbobo, Sector Specialist, Upington SEZ Tel: +27 54 333 1136 and 071 016 5813 Email: bmbobo@upington-sez.co.za Dr. Mphulane Ramorena, Project Executive Tel: 076 442 4437 Email: mramorena@upington-sez.co.za Physical address: 24 Schroder Street, Upington 8801 NCEDA: 6 Monridge Office Park, Cnr Kekewich & Memorial Street, Kimberley 8301 Tel: +27 53 833 1503 Fax: +27 53 833 1390 Website: www.nceda.co.za

Thobela Dikeni

BIOGRAPHY

Thobela Dikeni has held various managerial positions in the private sector, including senior positions at Standard Bank and FNB (where he was Director Public Sector Banking). He was Director Business Development and Africa for Naspers’ subsidiary Paarl Media. He has studied Economics and Management and attended several executive development programmes at international institutions. He is currently studying for a Master’s degree in Information and Knowledge Management. He has served on private and public sector boards.

The Upington SEZ boasts several advantages

Thobela Dikeni, CEO of the Upington SEZ, explains how climate and location enhance the value proposition.

What sectors are you hoping to attract to the SEZ?

In the first phase, renewable energy and aviation. These sectors are the focus of the Economic Development sector of the Northern Cape and in line with the Provincial Growth and Development Strategy (PGDS).

How does the location of the SEZ support the business case for investing?

Renewable energy: Upington is an area with warm weather and long sunny days for solar energy generation. The increasing and sustained demand for photovoltaic (PV) and concentrated solar power (CSP) systems will produce a number of assembly opportunities for PV panels and inverters as well as CSP in-field mirrors, structures and backward integration of manufacturing facilities. European and Chinese companies continue to express interest in establishing solar energy component manufacturing and assembly plants. About 440ha of land is set aside for the development of a solar farm with a complete EIA for industrial development. Aviation: An arid climate which is not susceptible to accelerated corrosion and deterioration and the availability of relatively low-cost open land are positive factors. Upington is close to the northern border of South Africa which makes it convenient and strategic from the African continental perspective and its relative remoteness enhances security considerations.

How important is the airport?

Successful SEZs are attached to ports, whether airport or sea port. Therefore, the proximity to an airport will assist the value proposition and logistics connectivity of the SEZ. Upington Airport has an unusually long runway (5km) that serves as a designated African landing site for the shuttles of National Aeronautics and Space Administration (NASA).

What progress has been made in getting the SEZ off the ground?

Positive feasibility studies have been conducted. Environmental Impact Assessments have been completed. A Record of Decision has been received. The application for designation was submitted in May 2018.

PROFILE Maluti-A-Phofung Special Economic Zone

Attractive incentives and good infrastructure make for a compelling investment proposition.

The Maluti-A-Phofung Special Economic Zone was officially launched on 25 April 2017. The Maluti-A-Phofung Special Economic Zone (MAP SEZ) is strategically located in the eastern part of the Free State Province. Its location and access to good transport infrastructure provides it with an advantage as a logistics hub.

The main objective of the MAP SEZ is to attract foreign and direct investment and to stimulate the local economy as well as creating meaningful work opportunities. The SEZ will further provide support to local businesses, skills transfer and accelerate the establishment of manufacturing activities in creating local and international trade with value-added benefits.

The zone has 1 038ha of land which is divided into four precincts, including one for cross-docking and a container terminal. The proximity to major agricultural production areas makes an attractive investment destination for food processors. Taking advantage of its central location on the N3 road corridor between Johannesburg and the busiest port in South Africa, Durban, the Maluti-A-Phofung Special Economic Zone’s ultimate value proposition is to create a prosperous trade city with a functional trade ecosystem.

Sectors

The main sectors of the Maluti-A-Phofung Special Economic Zone are: • • • Automotive Agro-processing Pharmaceuticals • • • ICT Logistics General processing.

Incentives

A number of incentives are available to investors, including the use of a Customs Controlled Area tailored for manufacturing, storage, repackaging, processing and beneficiation: qualifying entities will pay15% tax (not 28%), 10% rebate on buildings or improvements for 10 years, employment tax incentives reduces the amount of PAYE, grants are available to support machinery for production.

A One-Stop Shop strategy has been introduced to reduce bureaucracy and red tape for government approvals and applications processing, permits and licences.

CONTACT DETAILS

Contact person: Maphoka Setai, Office Manager Address: Cnr of De Lange and Amanda street, Sthiane, Harrismith 9880 Tel: +27 51 4000 800 Email: maphoka@mapsez.co.za Website: www.mapsez.co.za

Achievements

MAP SEZ has attracted a number of investors which have been approved by the National Department of Trade and Industry (dti) for top structure funding to the value R200-million. The investment value created as a result amounts to R550million over the period of five years. A landmark investment into the MAP SEZ occurred with the launch in June 2018 of the Kevali Chemicals plant. Kevali produces products for use in hygiene and sanitation, watertreatment and adhesives. The investment forms part of the promotion of black industrialists by the dti.

Small businesses have been empowered through the awarding of procurement contracts for goods and services. The local community has been empowered through the provision of jobs to locals on all the completed and ongoing capital projects.

Mpho Mgemane

BIOGRAPHY

Mpho Mgemane graduated with an honours degree in Industrial Psychology from the University of South Africa. She was born in Soweto, Johannesburg, but attended high school in Qwa Qwa. She acquired considerable knowledge in asset capital funding and deal-making during her time with Nedbank, Absa and Standard Bank. After a spell as Executive Director of the Food Gardens Foundation, Mpho led the Expanded Public Works Programme of the Free State Provincial Government and became MAP SEZ CEO in 2016.

Bringing work opportunities and skills transfer

The CEO of the Maluti-A-Phofung Special Economic Zone, Mpho Mgemane, relates how new investments are ramping up.

How does the MAP SEZ benefit from its strategic location?

The zone is strategically situated on the intersection of the N3 and N5 highways. These are some of the country’s most important and busiest freight routes and provide the MAP SEZ with prime access to the busy Durban port, the large Gauteng commercial market, the Port Elizabeth and Cape Town ports and also provide a link to imports and exports to and from SADC countries.

What are the main sectors you are targeting to invest in the facility?

There are six priority sectors: automotive, agro-processing, logistics, general processing, ICT and pharmaceuticals. Agro-processing is our main targeted sector.

How far advanced is infrastructure development at the SEZ?

Bulk infrastructure development of the park is being undertaken in three phases. Phase 1 Bulk has reached over 75% completion and is scheduled to be completed by January 2019. The subsequent phases will be led by the coming of new investments. We have also signed on three new investors with their top structure construction scheduled to start in February 2019.

What is the significance of a chemical company deciding to locate their factory at MAP SEZ?

This is our first official investment as an SEZ. The chemical plant will be relocated to its new custom-built facility following its construction. The chemical plant has acted as a live advertisement for the SEZ to other investors as the Harrismith area is not well known as an industrial hub. This facility not only brings work opportunities to the area, but we are looking forward to the skills transfer that will be made possible through its operations.

What other significant investments have there been?

We have two abattoirs (one beef abattoir and one pork abattoir) with construction to commence in the near future. We are also finalising investment deals with another chemicals plant, a human hair manufacturer, a beverage processing plant, a farming vehicle assembly plant and a biogas facility.