IDZs programme has missed the mark – October

2012-01-21 08:45

Lionel October, the director-general at the Department of Trade and Industry, admitted this week that the country’s Industrial Development Zones (IDZs) programme had underperformed when it came to attracting investors, citing lack of attractive incentives, or the so-called tax holidays.

“Our IDZ programme has been restrictive and it had no special incentives to compete with IDZs in Tanzania, China, Singapore, South Korea. We have beefed up our IDZ programme to be able to better compete with other IDZs around the world,” he said.

As a consequence, South Africa’s struggling IDZs are set to be given a war chest, which will give them enough fire power to compete with their more successful rivals across the globe.

The department has gazetted new legislation that will result in IDZs being given special tax incentives to improve their chances of attracting investors.

The legislation will also pave the way for the establishment of a special fund that will provide financial assistance to investors.

The legislation also seeks to promote industrial development in provinces that do not have IDZs or have limited manufacturing activity by introducing special economic zones (SEZs), particularly in Limpopo, North West, Mpumalanga and the Free State.

South Africa has three operational IDZs – in Richards Bay, KwaZulu-Natal; East London; and Coega, near Port Elizabeth. The fourth IDZ, near the OR Tambo International Airport in Johannesburg, is yet to take off.

October pointed out that, contrary to speculation, the IDZs were not being scrapped but rather the SEZs would supplement their efforts.

Simphiwe Kondlo, the chief executive of the East London IDZ, is excited about the attempts to make South Africa’s IDZs more competitive.

“The IDZs do not have special incentives. We are excited about the designing and the planned rolling out of special incentives for South Africa’s IDZs, which have been lacking for years. This is a positive development since our inception.”

He said the loss of the country’s competitive advantage as the supplier of cheap and reliable electricity had not helped the IDZs in their efforts to entice investors.

“The impact is there, but it is not as severe because we are looking to attract light manufacturers instead of heavy industries whose energy needs are huge,” Kondlo said.

In 2009, global mining giant Rio Tinto scrapped plans to build a $2.7?billion (R22?billion) aluminium smelter at the Coega IDZ after the country suffered from severe power cuts, which forced mines and smelters to shut down for days.

Decades of underinvestment in electricity infrastructure had led to the national grid nearly collapsing in early 2009.

Since then, the country’s electricity tariffs have been on the rise as state-owned power supplier Eskom sought to find ways to finance its multibillion-rand capital expenditure programme that involves building new power stations.

The increase in electricity prices will complicate South Africa’s plans to industrialise on the back of cheap electricity, the big selling point for local IDZs in the past decade.

October said the government was working to address the power crisis, hence there would be an Eskom representative on the Special Economic Zones Board, which would oversee the implementation of the
new legislation.

This week, Trade and Industry Minister Rob Davies said the SEZs could lead to job creation and improvement in living standards for South Africans.

“We hope the new policy direction on the SEZs will result in accelerated industrial development, foreign and domestic investment attraction, the unlocking of regional economic development, broader access to economic opportunities to previously marginalised citizens and regions, more quality jobs and improvements in the general living standards of South Africans.”

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