Special Economic Zones & Trade Invest Africa initiatives

Meeting report

Special Economic Zones (SEZ) programme implementation
Mr Sipho Zikode, DDG: Special Economic Zones, DTI, stated the Special Economic Zones Act has now been put in place and commenced January 2016. The SEZ advisory board is meeting regularly in terms of the Act and advises Minister as to SEZ. We have developed the regulations which assist in the implementation of the Act itself.  DTI is funding project management teams in the provinces under Economic Development in the provinces. DTI has worked closely with StatsSA which will assist DTI in the monitoring of the progress of the SEZ. This monitoring process was approved by the Minister last week. We are now waiting for the provinces to submit new applications in order for DTI to designate SEZs. Another task team was established in National Treasury and its purpose was to determine loopholes in the SEZ Act and find a way to amend these loopholes.

Mr Alfred Tau, DTI Chief Director: SEZs and Economic Transformation, present the key highlights of the SEZ programme:
• Coega IDZ launched the R11, 5 billion BAIC investment for automotive products: these have not been realised as DTI is in the process of preparing the facilities upon which the investment will operate;
• Dube TradePort signed an agreement of R1,3 billion with CIPLA for the production of biosimilars;
• Musina-Makhado SEZ designation has been approved, and is anchored on US$.,9 billion in metal and horticulture;
• Saldanha Bay IDZ has a pipeline of 34 investments worth R14 billion. These pipeline investments are in the form of letters of commitment;
• OR Tambo IDZ has attracted a total of R260 million new investments covering horticulture and metal refining: nothing had been presented on OR Tambo in the last briefing to the Committee;
• Coega has been allocated 1000MW under the Renewable Energy IPP programme, with an investment value of R25 billion;
• Richards Bay awarded 2000MW under the Gas IPP programme, however, it has not yet been able to estimate the pending investments.

The number of four operational designated sites remained unchanged since the April briefing to the Committee: Coega, Dube TradePort, East London, and Richards Bay. This means that when these operational zones are visited, one will find active participation in the project.

Then, there are those designated but non-operational zones which means that there is no business in operation but that there is preparatory work underway. These zones include one more since April: OR Tambo Airport; Maluti-a-Phofung (Free State); Saldanha Bay; and Musina Makhado. Maluti-a-Phofung is making use of old industrial park infrastructure which gives the Free State an advantage. Saldanha Bay is also in process with infrastructure in partnership with Transnet National Ports Authority (TNPA). There were still three pending applications before DTI which required technical work to determine whether the potential SEZ is viable. Once the application is reviewed, recommendations are made to the SEZ advisory board who will make a recommendation to the Minister. At present, pending applications for a SEZ include Atlantis (Western Cape); Platinum Valley (Bojanjala, North West); and Nkomazi (Mpumalanga).

Mr Tau looked at the cumulative investment performance of the operational zones between 2000 and 2016.
Coega has 34 onsite investors with the number of secured investors having increased from 29 to 43. Coega also had direct increase in monetary investment from R6,8 billion to R28 billion. It was emphasized that these investments were secured and the only instrument necessary was operational space. The East London IDZ saw no change with 28 onsite investors and 4 secured investments. The Richards Bay IDZ also saw no change except that they have been awarded 2000MW under the Gas IPP. The Dube TradePort was seen as another performer in the SEZ with secured investors increasing from 5 to 16 with investment value increasing from R1,7 billion to just over R2 billion. Overall, there are still a total of 69 operational investments active in the zones but the number of secured investments has increased from 47 to 72 with the value of those investments increasing from R19,7 billion to R41,2 billion.

The investment performance of non-operational zones was:
• Saldanha Bay: R14,8 billion value of investment pipeline;
• Musina: US$3.9 billion value of investment pipeline;
• Atlantis: R300 million value of investment pipeline;
• Upington: R800 million value of investment pipeline; and
• Maluti-A-Phofung: R2, 0 billion value of investment pipeline.

Progress of selected zones. For Coega, there are total of 6 projects, some of which are expansions. The major projects coming to Coega and which are going through various stages of preparation are:
• Automotive investment:  R11,5 billion;
• CCGT Power station: R40 billion investment through the Department of Energy;
• A number of renewable energy programmes: R2, 8 billion;
• Stainless Steel Thin Strip Mill: R0.5 billion
• Manganese export & Rail upgrade: R27 billion – the idea is to increase the minimum export capacity from 5.5 to 6 megatons per year.

Saldanha (34 pipeline investors with investments of R14 billion): The main development in this SEZ is bulk infrastructure and civil services. TNPA is doing a lot of work in partnership with Saldanha to develop the deep water rig repair berth, shallow water jetty and the off-shore supply based procurement process scheduled for 2017. There has been intensive skill enhancement programmes in Saldanha. DTI acknowledged that to work in the oil and gas industry requires technical and health and safety skills.  Therefore, DTI has, along with a number of SETAs allowed small businesses to work in Saldanha. Over 500 students have been placed on various skills programmes.

Dube TradePort (R1,08 billion operational investments with expected further investments of R3 billion): The biggest secured investment has been the R1.3 billion Cipla investment. Cipla is in the process of constructing the first biotech facility for biosimilars. Over 300 direct jobs have been created.

SEZ planning regulations have been approved by DTI and published. Governance regulations have been drafted and there are lawyers in place who are reviewing these regulations. National Treasury has also drafted regulations which outline to investors what is necessary to qualify to receive the SEZ tax incentives. It is important to note that although many may be approved to invest in a zone, that not every investor will be incentivized. The regulations have been completed and published in the Government Gazette. 

One of the biggest challenges Mr Tau emphasized was around the future direction of the Renewable Energy Independent Power Producer Procurement (REIPP). This will have a massive impact on some zones as Coega and Upington zones depend on renewable energy. If the renewable energy programme does not proceed, it will delay the work in the zones that need them.  The strength of implementing institutions will have a direct bearing on the sustainability of the SEZ. In some areas, water availability is an issue and unless resolved it will impact on many industrial projects. Further, the development of technical skills, technicians and artisans, are critical for industrial development. We also need to ensure that host communities are able to benefit from the developments in their areas. In addition, cooperation with China and other countries, are important for the unlocking of investments in the Asiatic, as the majority of investments are coming from these areas. DTI is working with Treasury to ensure alignment between these bodies. Finally, Invest SA is rolling out one stop shops in all provinces which helps a great deal in providing support to investors.

Mr Tau concluded that there has been steady and significant progress on the SEZ implementation. Coega, Dube TradePort and Saldanha are seeing massive growth while other SEZs require more support. Intensive marketing and promotion needs to be sustained.

Discussion
Mr A Williams (ANC), the Acting Chairperson, asked why Saldanha was not up and running and what are the challenges stopping this. Also, what sort of SEZ support are you looking for?

Mr D Macpherson (DA) commended DTI on speaking passionately about the investments made in the SEZ, but placed emphasis and concern on Eskom’s refusal to buy renewable energy. He asked if this threatened the implementation of some SEZs and what the Minister was planning to do about it.

Mr N Koornhof (ANC) required clarity on the slide labeled ‘Challenges and Opportunities’ and wanted to know whether DTI considered renewable energy as either a challenge or an opportunity. If Atlantis, Platinum Valley and Nkomazi are found to be viable, will they be approved?

Mr A Alberts (FF+) asked what type of tax incentives have been created for the SEZ? It is allowed in terms of legislation that the Minister of Labour may relax labour laws in some situations. Has such a conversation taken place? And what offers are on the table? He asked if the aerospace park in Pretoria will be declared SEZ in the future and what the implications will be for this?

Ms P Mantashe (ANC) expressed appreciation for the presentation. She asked if DTI was in a position to integrate small businesses into the SEZ area, to enable growth. She understood the existing businesses in the SEZ to be large corporations. She expressed concern about the inquiry made by Mr Alberts on the relaxation of labour laws. She hoped that this did not mean negatively affecting the rights of workers.

Mr B Mkongi (ANC) welcomed the presentation. He asked what is your relationship with the Provinces in terms of the implementation of the SEZ and how many memorandums of understanding have you already signed? What is the spirit of Provincial leadership in terms of implementing the SEZ programme? He requested that DTI list the Provinces with whom DTI was working and outline the dynamics between DTI and each province. He was concerned about viability on a project which they had already lost. This was with reference to Atlantis. There was a large rally at Atlantis. He asked if the views of the community are considered in determining viability and what determines viability. What type of skills are we teaching young people in these learnerships, what is the cost content and the curriculum? Where are students headed after the completion after the SEZ learnership? DTI has implemented good projects but he asked it to be careful to look at the loopholes in the project. In DTI’s report to the Committee on industrial parks in September 2016, DTI did not indicate what the scientific relationship is between SEZs and industrial parks in the context of employment.

Ms Mantashe agreed with Mr Mkongi and asked DTI if they intend partnering with TVET colleges to encourage learnerships and employment.

Mr Zikode replied that South Africa is one of few countries with the best IPP programme in the world. He maintained that there was an issue between the objectives of government and the Eskom position but that the Cabinet was dealing with this issue. On the viability of the SEZ, one of the requirements of the Act is that the Province of the municipality must prove viability of the SEZ. The work of the Province is to show that there is a potential pipeline of investors that are coming as long as there is sufficient incentives and support, in and around the SEZ. The board will advise the Minister accordingly. This will apply to Atlantis as the Western Cape must show its viability. The Province owns the SEZ and must establish the SEZ board through the MECs and work together with their agencies. The Province also provides the investment and improvement budget of the SEZ. Further, the TVET colleges provide the SEZ with the requisite skills necessary for work in the SEZ. Saldanha is an oil and gas SEZ and therefore, students will be trained in these skills to ensure that they are ready for such employment. The aerospace park in Pretoria is considered an industrial park and there have been incentives in place for the development of the park. Companies are encouraged to form clusters in this park as the success of the park is dependent on this. At the moment, it will remain an industrial park into the foreseeable future. The law is clear in terms of the role of the spheres of government in the SEZ programme.

Mr Tau replied that the only reason Saldanha is not fully operational is because DTI is still in process of constructing its infrastructure. DTI is in the process of preparing water sites and land sites. Water sites allow rigs to be prepared on site and land sites allow items that need to be removed from the ship to be repaired on site as well. Approximately 50% of the work has been completed.

On the viability of Nkomazi, Platinum Valley and so forth, only those proposals that are viable and sustainable are approved. Sometimes a Province may not have the technical expertise to evaluate the sustainability and viability of an SEZ. When the board and the Minister is happy that all the factors have been taken into account and the proper preparations have been done, the Province will be able to designate.

On tax incentives, when the IDZ started, there was no such thing as a tax incentive. However, since, 2013, there has been an agreement that a qualifying investment will receive 15% corporate tax rate instead of the 28% tax rate. This has been a breakthrough for the SEZ programme as a whole. Before the introduction of the tax incentive, South Africa has not been able to compete globally as some countries offer a 0% tax rate. Since the introduction of the tax incentive, there has been a massive increase in the investments in these zones. We also have the 12I tax allowance scheme that give some qualifying businesses a 0% tax incentive.

Mr Tau drew attention to further incentives offered by DTI which included zero VAT on imports used in the production of goods. In terms of the relaxation of labour laws, it has been agreed between DTI, Department of Labour and NEDLAC have agreed to keep the existing labour laws intact in relation to the SEZ programme. In return, the SEZ will not interfere with the labour law system in South Africa. Integrating Small Medium Enterprises (SMEs) into the larger market are one of the bigger challenges DTI is facing. Part of the programme is to ensure that there is a support programme for SMEs and we are doing this across the board. The success tends to differ from region to region depending on the strength of agencies. There are various economic initiatives used to guide the cooperation of the various spheres of government. The Minister of DTI along with other stake holders collectively supervise the SEZ programme to ensure that things are moving in the right direction. DTI has also signed service level agreements with each Province. Each agreement is unique to the Province. DTI has also deployed technical people that work on fuel cells, iron and steel which will work with the Province.

Mr Tau placed emphasis on the human element and teams which are able to work together. Also, one of the tests used for viability is whether investors are interested. Thus, what DTI has done is where investors are interested, DTI would allow an immediate investment, as we need to have jobs and investments, now. Existing investors also have a better chance of obtaining new investments.

Mr Tau responded to the question on student learnerships. The main goal is to flood the sector with relevant skills. Therefore, it depends on the SEZ and what is related to it. It was stated that DTI is training students for an increase in job opportunities. Arrangements have also been made to ensure that there is a seamless movement from training into employment. DTI is working in various ways to ensure a relationship between the zones and TVET colleges. In Musina, there is an incubator established in TVET colleges.

Trade Invest Africa (TIA)
Ms Lerato Matabogo, Acting CEO: Trade Invest Africa, Department of Trade and Industry, opened the presentation with the investment potential of South Africa. At the level of tariffs, there has been progress, but the question has been whether SA has been vested in the industrial development of the continent and this speaks to why TIA has been created. The creation of the TIA has always been a product of the Medium Term Strategic Framework (MTSF) 2014-2019 as well DTI strategic goals. At the time TIA were attempting to create an Africa expo council, however, a much more sustainable approach was needed and an expo council was not viable. We also concluded that an outward investment led approach was better in utilizing the South African investments to move into the continent and create jobs and develop an export drive on our part. This is the genesis and transformation of the TIA.

Ms Matabogo introduced the logo and the name of the TIA and stated that it had been established in 2016. The aim of TIA is to increase SA’s investment and trade with the rest of the continent. TIA the go-to unit for companies who look for trade and investment opportunities in the rest of the continent. TIA works closely with government to facilitate exports from the continent into the rest of the market. In as much as we want to open markets, it is important to source more from our own continent. TIA also offers facilitation support to business and make use of outward investments to create mutually beneficial relationships.

TIA supports ‘Development Integration’ by identifying infrastructure and industrial projects in the rest of Africa aimed at trade facilitation. Its mandate is to implement an outward investment-led trade strategy towards the rest of Africa (ROA). This is the only way to address the trade imbalance with RoA and ensure sustainable economic partnerships and growth. As South Africa invests in and imports from the RoA, we create future demand for South Africa’s own exports – this is termed the Virtuous Cycle.

Ms Matabogo stated that the objectives of TIA include:
• Position South African entities and countries (SA Inc.) as the preferred suppliers of value added goods and services to the rest of Africa;
• Uncover trade and investment opportunities for SA Inc. in the rest of Africa;
• Assist South African businesses already operating in the rest of Africa to resolve any market access issues;
• Assist South African businesses with market entry strategies for the rest of Africa markets;
• Assist South African businesses in identifying local partners in the rest of Africa.
Therefore, TIA will facilitate the necessary services related to trade and investment on the continent, with focus specifically placed on export ready companies that are able to supply goods and services to the rest of Africa. This does not exclude SMEs but TIA does require export readiness. Therefore, TIA encourages the businesses we support to embrace the Guidelines for Good Business Practice in Doing Business in Africa. The Guidelines were launched in July and these enable companies to become good corporate citizens. One can summarize these offerings as access to capital, access to markets and contacts and other non-financial support.

Access to Capital 
TIA does not provide capital but what TIA does do is to facilitate access to capital. Financial support will therefore, be provided through leveraging SA Development Finance Institutions (DFIs) and DTI incentives for: export insurance finance; market exploration support; export promotion, financial support and infrastructure and industrial project funding.

Access to Markets
TIA facilitates access to market opportunities through undertaking sector specific and project specific business missions to the continent. We also endeavor to unlock trade and investment opportunities through government-to-government engagements. We need to ensure that our missions are targeted and yield results. Finally, we are addressing non-tariff barriers to trade.

Other Non-Financial Support
A suite of other support measures provided by the TIA includes undertaking market research, and establishing a portal for business networking and match-making through dialogue platforms. We are looking at the manners in which we can engage with Francophone Africa and Lusophone Africa as the continent is not homogenous. 

Ms Matabogo drew attention to the operational model and budget of the TIA which is currently operating on the basis of officials from within DTI. The current staff complement is 8 officials and 12 interns on two year contracts. The allocated goods and services budget for the 2016/17 financial year is R10 million which has been sourced from within the Department.

Ms Matabogo outlined the key deliverables in the first 100 days since their creation as follows:

Marketing and Outreach
• Officially launched TIA on 15 July 2016 at the CSIR International Convention Centre;
• Development and finalized TIA logo identity. The Minister’s approval has been received and the logo is in the process of public comment before being published in the Government Gazette;
• A dedicated TIA link has been created on DTI website;
• Created and aired a TIA radio advert to inform potential exporters and investors interested in doing business in the rest of Africa on the role and mandate of TIA.
• Undertook a road show to the Western Cape in collaboration with WESGRO and African Brand Link;
• Collaborated with the DIT media unit for television and print media interviews outlining the role and mandate of TIA.

Stakeholder Engagements
• Meeting are held with various companies looking to input on their market entry strategies and market optimization strategies; as well as with respect to infrastructure and industrial project opportunities on the continent;
• Meetings are held with various African Missions made in South Africa for collaboration and information-sharing.
• Collaboration with Brand South Africa on positioning South African goods and services on the continent and overall economic offerings;
• Holding workshops with Export Councils for investment and trade strategies for engaging the continent;

Government-to-Government Platforms
• Participating on the outward Mission to Zimbabwe to engage on barrier to trade;
• Participating in South Africa – Namibia Bi-National Commission to discuss key investment projects;
• Participated in the State visit to Kenya to advance collaboration on infrastructure development.

Investment Conferences
• Participated in the Tshwane International Investment Conference in Tshwane;
• Participated in the Kenya Investment Conference in Cape Town;
• Participated in the South Africa – Nigeria Banker’s Conference in Johannesburg;
• Co-hosted the Namibia Investment Conference in Johannesburg.

Access to Markets
• TIA has resolved one non-tariff barrier that was experienced by a company in the Nigerian market;
• Facilitated and undertook the 1st outward business mission with Black Industrialists in Nigeria. She was pleased to say that some of these persons had obtained a deal which is still under negotiation;
• TIA has also undertaken a technical mission to Madagascar;
• Undertook a business mission to Ghana in collaboration with WESGRO and Plastics SA.

Ms Matabogo moved on to explain the outputs that TIA aims to achieve by the end of the financial year: finalize the establishment of the business portal and the host for the business portal; participate in three investment conferences with partner African countries and government-to-government platforms. Road shows are underway in provinces that had not been covered and there should be finalization of the organizational model, establishment and budget processes for TIA.

Ms Matabogo spoke to the graphs on the presentation:
South Africa’s Global Export Markets
The blue and red graphs indicate Asia and Africa. Exports to Africa are surpassing to exports to Asia and this is a good indication on how critical the market on our own continent is and how we are to engage critically on the market.

South Africa’s Global Export Markets
The trade balance with the rest of Africa was illustrated on a graph between 1994 and 2015 showing  exports (R300 billion) against imports (R114 billion). The trade surplus for SA exports  is huge which is an issue. When we have political engagements with other countries on the continent, they raise the narrowing of the trade balance as an issue.

South Africa’s Trade with the Rest of Africa
This shows where the majority of SAs exports are going. 86,4% of exports are going to SADC countries, 7% to West Africa and 3,9% to East Africa, 1,6% to North Africa and 1.2% to Central Africa. So, this for us shows that our strategy needs to penetrate other regions of the continent whilst not eroding the market share in the SADC region.

South Africa’s Top-10 Export Destinations
Botswana 17,3%
Namibia 16,4%
Mozambique 10,9%
Zambia 9,8%
Zimbabwe 8,3%
Swaziland 5,5%
Lesotho 4,8%
DRC 4,5%
Angola 3,8%
Nigeria 3,5%

Investment Footprint
Ms Matabogo stated that the concentration of SA investments is in the southern regions. The big four banks have their concentration in SADC. To us, this shows that where exports are going, investments are going. It is important that, within government, we coordinate more sharply and effectively.

Ms Matabogo concluded by stating that the future sustainable growth and development of our continent depends on increasing the levels of intra-Africa trade and intra-Africa investments and TIA is the government’s response to this imperative through creating a dedicated unit to support business in trading with and investing in the African continent.

Discussion
Mr Macpherson commended TIA on the interest raised about trade within Africa. What is your relationship with Trade and Investment South Africa? He was concerned with the overlap in the work done by Trade Invest South Africa (TISA) and TIA and understanding why it is a body its own and not an arm of TISA.

Mr J Esterhuizen (IFP) asked about the difference between TIA and Brand South Africa and how TIA justified their existence. Further, what is the cost and financial implications to a company and what type of payment would it be and what is the duration of the trade? Africa is known for non-payment of bills. What guarantee is there that a company would have for payment of their goods. DRC is one of the most politically unstable countries in Africa.

Mr Koornhof thanked DTI for the presentation and commended them on the trade in Africa stating that this is where investment must be made and that aggression be directed into investing SA products in Africa. He stated that it is alarming that Botswana and Namibia are our largest exporters as these markets are small and it shows that we should deal with the larger countries in Africa. He quoted the famous line from Shoprite which stated that it sells more ‘JC Le Roux’ in Angola than it does in SA, so it shows the opportunity. He recommended that TIA contact Wines of SA (WOSA) as Africa is drinking, not South Africa.

Ms Mantashe applauded the initiative as it was the implementation of a solution. She asked that for the sake of transparency the company for which the trade barriers were removed, should be mentioned.

Mr Mkongi welcomed the interesting report on trade in Africa. He inquired into the relationship between SA and the rest of Africa. He noted the concept that SA is the gateway to Africa and that trade relations between SA and other countries is one of "big brother" and "small brother" and that this was reflected in the trade balance. The TIA calls its strategy outward-looking, why are we not importing? We must also not claim companies which are not South African as this affects our trade balance, is Massmart South African or American? Is this strategy of the TIA in line with the MTSF and the African industrialization framework?

The Chairperson wanted to know the difference between TIA and the provincial investment agencies. What is your relationship with the Provinces?

Ms Matabogo stated that the relationship between TISA and TIA is that a number of divisions within DTI have an African focus. TISA looks into creating export markets globally while TIA is dedicated to the continent. She stated that overt efforts are made not to waste resources by overlapping functions between different bodies within DTI. As to the difference between TIA and Brand SA, TIA has good collaboration with Brand SA which has been facilitating our outward investments plus our imports from the continent into the South African market. We do see a need for collaboration and Brand SA has been a strategic partner for us. TIA does not have a revenue generation model as we are a government initiative. Payment guarantee is a problem and that is why we work closely with the Export Credit Insurance Corporation making sure that companies are covered for the political risks companies may encounter. Therefore, SA Inc has a full holistic approach to assisting companies. We will ensure that we reach out to WoSA. She apologised for not being specific and said the company that TIA assisted in overcoming trade barriers was ‘Lucozade’. There was a certification issue and in partnership with the agricultural market we achieved the export.

Ms Matabogo said it was a pertinent issue about importing more from Africa. The reason TIA's approach is outward and the reason for not importing as much, is to do with the level of import capacity. If we take an outward investment strategy, it builds a sustainable platform for us to import from the rest of Africa. There has to be a level of officiation and processing. TIA takes heed of the need to import and that is part of the long term strategy. It is fully in line with the African industrialization strategy as we make sure that there is actual productive production.

Ms Matabogo replied that there is great room for collaboration between the provincial agencies and TIA as we know that they are at the core of reaching out to every part of SA. All our efforts so far have been in collaboration with the Provinces. It is important to keep the Provinces close to us as they are at the pulse of everything we do.

The meeting was adjourned.