Special Economic Zones Bill [B3B- 2013]: briefing by Department of Trade and Industry

Meeting report

The Chairperson said that 16 October was the first day of the six-week cycle of the National Council of Provinces (NCOP) for dealing with the Section 76 Bill.  Delegates would have to brief their respective provinces. He asked the Department of Trade and Industry (dti) to make officials available for provincial briefings.

Briefing by Department of Trade and Industry
Mr Tumelo Chipfupa, Deputy Director-General: Incentive Development and Administration Division, Department of Trade and Industry, described the background to the Special Economic Zones (SEZ). The purpose of the SEZs was to promote regional development, economic growth, beneficiation and attract foreign direct investment. The Department had consulted with different stakeholders, such as the departments, provinces and municipalities that would host the SEZs.   The SEZs would have advisory boards. Section 5 of the Bill allowed the Minister to determine policy for designation, promotion, development operation and management of SEZs after consultation with advisory boards.

Section 6 allowed the Minister to review policy. The advisory boards would consist of more than 16 members from government, labour, public entities, civil society, business and individual people on the basis of their knowledge and expertise relevant to the SEZs. The board would report to the Minister on progress relating to the development of SEZs. The board would have a dedicated secretariat in the Department to support and facilitate functions of the board. To provide financial support, human resources and other resources, the Minister would set up a dedicated fund with money voted by Parliament. The boards would have to comply with the Public Finance Management Act (PFMA).

The national and provincial governments, municipalities or public private partnerships could apply for licenses to set up an SEZ.  SEZ’s would be in the following categories: a free port, a free trade zone, or a sector development zone. The Minister may prescribe guidelines for each category of SEZ and conditions that may be imposed. The boards would have to submit business plans to the Minister on an annual basis. The boards must appoint an operator who would operate the SEZ on its behalf.

Mr Chipfupa said that the Department had appointed nine service providers to do feasibility studies on the proposed SEZs in all the provinces. Thirty government officials were in China undergoing SEZ training.  R500 million was available in 2013 for the feasibility studies. The following tax incentives had been approved: 15% corporate tax incentives for investors in SEZs, a building tax allowance, an accelerated 12i tax allowance, an employment tax incentive, VAT exemption and duty free.

Discussion
Mr X Phakathi (Eastern Cape special delegate) asked for clarity on the funding of the SEZ. The port of Ngqura (Coega) and the East London IDZ were funded by the provincial and the national government.  He said that he appreciated the provision of incentives.

Mr Chipfupa replied that the Department would provide funding for Coega and East London, but the provinces would provide operating licensing. That would ensure that the provinces owned the SEZs.   He added that the funding model was not yet finalised.

Mr K Sinclair (COPE, Northern Cape) said that most people had been pleading for the reindustrialisation of the country. He asked the reason that the Department had incentivised small pockets of land instead of the whole country to cut out the red tape for doing business. He wanted to know what was involved in changing IDZs to SEZs. He suggested that the Department should spread the SEZs to De Aar in the Northern Cape. He felt that the people who would represent the Department on the SEZ board should not be limited to the level of the DDG.

Mr Chipfupa explained that the SEZs were designated in a way that would mean less red tape, because all the necessary Departments like Home Affairs, DTI, SARS, etc, would be there to provide a one stop shop. He said that it would be good for the whole of the country to be a SEZ, but the Department felt that they should start with targeted areas. All existing Industrial Development Zones (IDZ), like Richards Bay, Coega and East London would convert their operating licences to SEZ licences to benefit from the incentive scheme.

Ms B Abrahams (DA, Gauteng) asked for clarity on the role of the Minister. She asked why the focus was on special zones, rather than the whole country. Would the SEZs be able to grow the economy?

Mr Chipfupa explained that businesses had many incentives countrywide, but the SEZs had more incentives. The Advisory Board would report to the Minister on progress relating to the development of SEZs, The Minister would also review the policy that dealt with SEZs.

Mr B Mnguni (ANC, Free State) said that one of the objectives of the SEZ was to cut the red tape, but the fact that entities who wanted to set up SEZs should apply through municipalities would only increase the bureaucratic red tape. He asked whether produce that was processed in the SEZs would attract tariffs when it was exported to SA’s trading partners.

Mr Chipfupa explained that they had looked at whether the SEZs were compatible with World Trade Organisation regulations, and the SEZs complied with all WTO and other tariff regimes that were export related.

Mr F Adams (ANC, Western Cape) said that the idea of SEZs was long overdue for the whole continent. He complimented the Department on realising the SEZ dream. He asked whether the Department had considered working closely with their Indian counterparts, because the Indian sub-continent had very successful SEZs.  During a visit to Spain, the Committee had seen very successful SEZs. He asked why nothing had been mentioned about the role of cooperatives and small businesses.

Mr Chipfupa said that the Government of China had made an offer to train officials because they had experience in running successful SEZs. The Department had worked with Ireland and Bhutan in South Asia, and a number of countries like Korea and Singapore. He was aware of the trade deficit with China, but the Ministry was addressing the issue. South Africa was mainly exporting raw materials to China and importing manufactured products.   SEZs would be focusing on beneficiation as a way of balancing trade and exporting manufactured goods. They would also benefit local communities through the use of labour and other resources that could be sourced locally.

Mr Dumisani Sombinge: Director: Legal Services, Department of Trade and Industry, pointed out that Section IV Subsection (II) of the Bill made provision for small, medium and micro enterprises (SMMEs) and cooperatives. The Bill also talked about broadening participation through supplier development programmes. The people that lived around an SEZ would be upskilled to provide the necessary expertise.

The Chairperson said that the most DDG’s were sitting on the boards of different entities and most of them were too busy to attend meetings. He suggested that the process of appointing DDG’s to sit on SEZ advisory boards should be reviewed. He asked whether all the proposed SEZs would be funded on a uniform basis. He asked the reason that municipalities were being burdened with the problem of licensing the SEZs, and who qualified to operate a SEZ.  The Chairperson suggested that people who were specialists in agriculture should also sit on the SEZ advisory boards, especially those with a focus on agro processing.   

Mr Chipfupa replied that the Department had different budgets for each SEZ because they would be dealing with different things or products. The SEZ fund was not finalised yet, but lots of funding would be used for infrastructure on a new SEZ. The Department would note the concern about appointing DDG’s to sit on advisory boards. All the municipalities that were targeted for SEZs had enough capacity, and those which did not have capacity would be assisted by the provinces, the DTI, or even private sector players.  Boards would involve as many people as they could, but they should possess relevant skills. There was still a guideline that would be issued to broadly explain the role of operators.  SEZs would be operated by a South African-registered company.  Section7 subsection 7(a) made provision for alternatives when a DDG could not be appointed to sit on advisory boards.

The Chairperson said that South African companies should be empowered and protected in the IDZs, because they could be muscled out of the equation by foreign companies. He suggested that the Department should take advantage of all the help offered by friendly countries.

Mr Sinclair said that municipalities should be involved all the way with the operations of SEZs.  He then put forward a motivation for the Northern Cape to be the centre of beneficiating minerals that were extracted from that part of the country.  He questioned the effectiveness of Public Private Partnerships (PPPs).

Mr Chipfupa thanked Committee for the comments and suggestions.  The Department expected more when they went to the provinces.  Municipalities would be involved not only through infrastructure, but they would own the SEZs with the provinces.   The DTI and Treasury had been working on the structure of workable PPPs.

The Chairperson urged the Department to explain the process in very simple terms when they visited the provinces for briefings.

The meeting was adjourned