Special Economic Zone (SEZ)
Background
The South African government, in an effort to reposition itself in the world economy, established the Industrial Development Zones (IDZ) programme. The Programme's main focus was to attract Foreign Direct Investment and export of value-added commodities. Although there are major achievements with the IDZs there were weaknesses that led to the policy review and the new SEZ policy.
The policy review and the new SEZ Programme, which began in 2007, was also brought about by the developments in national economic policies and strategies such as the National Industrial Policy Framework, and the New Growth Path, as well as developments in the global economic environment such as the formation of BRICS.
The new SEZ Policy provides a clear framework for the development, operations and management of SEZs, including addressing challenges of the current IDZ Programme. The purpose of the SEZ programme therefore is to:
Expand the strategic industrialisation focus to cover diverse regional development needs and context;
Provide a clear, predictable and systemic planning framework for the development of a wider array of SEZs to support industrial policy objectives, the IPAP and the NGP;
Clarify and strengthen governance arrangements, expand the range and quality of support measure beyond provision of infrastructure; and
Provide a framework for a predictable financing framework to enable long term planning.
Overview of the SEZ Programme
Special Economic Zones (SEZs), are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country.
The 2014/15 - 2016/17 Industrial Policy Action Plan - IPAP identifies SEZs as key contributors to economic development. They are growth engines towards government's strategic objectives of industrialisation, regional development and employment creation.
Special Economic Zones may be sector-specific or multi-product and the following categories of SEZs have been defined as per the SEZ Act No. 16 of 2014:
"Industrial Development Zone" means a purpose built industrial estate that leverages domestic and foreign fixed direct investment in value-added and export-oriented manufacturing industries and services;
"Free Port" means a duty free area adjacent to a port of entry where imported goods may be unloaded for value-adding activities within the Special Economic Zone for storage, repackaging or processing, subject to customs import procedures;
FREE TRADE Zone" means a duty free area offering storage and distribution facilities for value-adding activities within the Special Economic Zone for subsequent export;
"Sector Development Zone" means a zone focused on the development of a specific sector or industry through the facilitation of general or specific industrial infrastructure, incentives, technical and business services primarily for the export market.
SEZ Act No. 16 of 2014.
The SEZ Act provides for:
The designation, promotion, development, operation and management of SEZs;
The establishment of the SEZ Advisory Board;
The establishment of a the SEZ Fund;
The regulation of application, issuing, suspension, withdrawal and transfer of SEZ operator permits; and
The functions of SEZ operators.
The objectives of the Act are to:
Determine SEZ Policy and Strategy;
Establish an SEZ Advisory Board and SEZ Fund;
Ensure proper designation, operation, promotion, development and management of SEZs;
Enact regulatory measures and incentives for SEZs in order to attract domestic investment as well as Foreign Direct Investment (FDI); and
To establish a one-stop-shop to deliver government services within the zone.
Benefits of operating within an SEZ
A number of incentives will be available to ensure SEZs growth, revenue generation, creation of jobs, attraction of Foreign Direct Investment (FDI) and international competitiveness.
These SEZ incentives include:
Preferential 15% Corporate Tax
Businesses (prescribed in section 24(4) of the SEZ Act) that are located in a Special Economic Zone may be eligible for tax relief, including the reduced rate of corporate income taxation. In addition to satisfying the requirements of the SEZ Act, further criteria for some of the available tax incentives are stipulated in the Income Tax Act, 1962 (Act No. 58 of 1962.)
Building Allowance
Businesses and Operators (prescribed in section 1of the SEZ Act) operating within a Special Economic Zone may be eligible for tax relief, including the building allowance, subject to requirements contained in the Income Tax Act.
Employment Incentive
Businesses and Operators operating within a Special Economic Zone may be eligible for tax relief, including the employment tax incentive subject to requirements contained in the Employment Tax Incentive Act, 2013 (Act No. 26 of 2013).
Customs Controlled Area
Businesses and Operators located within a customs controlled area of a Special Economic Zone will be eligible for tax relief as per the Value-Added Tax Act, 1991 (Act No. 89 of 1991), the Customs and Excise Act, 1964 (Act No. 91 of 1964), the Customs Duty Act 2014 (Act No. 30 of 2014) and the Customs Control Act, 2014 (Act No.31 of 2014).
12I Tax Allowance
The 12I Tax Incentive is designed to support Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). The new incentive offers support for both capital investment and training. For further information, click here
Note that SEZ guidelines for these incentives are currently being finalised. Further information on the qualifying criteria is available in the Acts referred to above. See the National Treasury (www.treasury.gov.za) and SARS (www.sars.gov.za) Websites for the latest on Income Tax Legislation and Customs Procedures. Please note that the SEZ Regulations will be published for public comments in due course.
Special Economic Zones Monitoring and Evaluation
Since the SEZ Act was signed into law, there has been considerable interest through inquiries on SEZ implementation progress as well as performance by the operational IDZs.
The SEZ M&E has initiated SEZ Quarterly Performance Analysis Bulletin. The purpose of the bulletin is to provide information to the general public and other stakeholders as well as policy makers regarding the performance progress that has been made with the implementation of the SEZ Act.
Enquiries and clarifications on the Special Economic Zones Performance Analysis Bulletin may be submitted to:
Mr Jabulani Sithole
Deputy Director: Monitoring and Evaluation
Tel: +27 (12) 394 1292
Fax: +27 (12) 394 2292
E-mail: JSithole@thedti.gov.za
Existing Industrial Development Zones (IDZs) in South Africa
These zones were developed with the aim to increase industrial growth. There are currently five operating IDZs in South Africa, namely:
Coega IDZ
The Coega IDZ is the largest IDZ in Southern Africa. It was designated in 2001 and became South Africas first Industrial Development Zone. It is located in the Nelson Mandela Bay Metropolitan Municipality in the Eastern Cape Province and it is strategically located on the east-west trade route to service both world and African markets. The Coega IDZ leverages public sector investment to attract foreign and domestic direct investment in the manufacturing sector with an export orientation. The IDZ has attracted investment in the agro-processing,automotive, aquaculture, energy, metals logistics and business process services sectors. This has advanced socio-economic development in the Eastern Cape region through skills development, technology transfer and job creation.
For more information visit www.coega.co.za
Or contact:
Ms Keletso Tsele
the dti Project manager:
Tel: +27 (12) 394 5964
Fax: +27 (12) 394 6964
E-mail: KMTsele@thedti.gov.za
Richards Bay IDZ
The Richards Bay Industrial Development Zone (RBIDZ) is a purpose built and secure industrial estate on the North-Eastern South African coast. The N2 business corridor links the Province's two major ports, Durban and Richards Bay, and connects with Maputo in Mozambique and, ultimately, areas of East Africa. It is linked to an international sea port of Richards Bay, tailored for manufacturing and storage of minerals and products to boost beneficiation, investment, economic growth and, most importantly, the development of skills and employment. First-world infrastructure allows for the full exploitation of the areas' natural and strategic advantages. Through the superb industrial infrastructure, well-established network of shipments, tax and duty free incentives, the IDZ aims to encourage international competitiveness and the attraction of export-orientated manufacturing investment.
For more information visit: www.rbidz.co.za
Or contact:
Mr Kenneth Mojela
the dti Project manager:
Tel: +27 (12) 394 5690
Fax: +27 (12) 394 6690
E-mail: KMojela@thedti.gov.za
East London IDZ
Innovation, Efficiency, Growth and Sustainability are key to the East London Industrial Development Zone's (ELIDZ's) reason for existence. Established in 2003, as part of the South African government initiative to improve industrial competitiveness and economic growth in the country, the zone has become a prime industrial park in South Africa, renowned for its customised solutions for various industries including automotive, agro-processing and aqua-culture. The ELIDZ offers growth oriented companies a specialised manufacturing platform, innovative industrial and business solutions access to new markets and strategic industry networks.
The ELIDZ, one of the country's leading specialised industrial parks, is located in Buffalo City, the municipal area which also incorporates Bhisho, the province's capital and King William's T