Media release: Special economic zones need to be special and fully “offshore”, not business-as-usual

“For special economic zones (SEZs) to be special, they need to provide investors with a clear signal that it is in their interests to come to South Africa rather than an SEZ in China. The ‘special’ in SEZ must be exactly that – radically different from other trade areas,” said FMF executive director, Leon Louw, commenting on the SEZ Act 2014 in a written submission to government’s High Level Panel (HLP)* established by Parliament to assess the impact of key legislation on the critical challenges facing South Africa today. 

The FMF is delighted that government has recognised that much of South Africa’s legislation aimed at stimulating and growing the economy, is having the opposite effect, often through unintended consequences. The HLP investigation is a welcome and much needed initiative. It gives civic organisations and individuals an opportunity to participate in open and transparent debate to remove obstacles that prevent us from developing a prosperous and healthy economy and society.

The FMF has argued consistently for the creation of special economic zones (SEZs) and welcomed the government’s original intention to create SEZs throughout South Africa to spur economic growth and development. But, Louw says, “much of the Act, as it now stands, will not achieve that objective because it does not reflect true appreciation of what makes successful special zones, special.”

All businesses and investors look for the opportunity to operate freely without excessive government interference, with minimal regulatory burdens and policy certainty. The current SEZ Act allows for ministerial discretion to decide how an SEZ should be constituted. The Minister will have almost carte blanche power to grant and withdraw licenses contrary to the rule of law, and, in consultation with an overtly political SEZ Advisory Board, may even withdraw the designation of an area as an SEZ. This provides no certainty at all for investors. It also burdens business with excessive red tape, which is the antithesis of successful SEZs elsewhere in the world. These issues must be addressed for SEZs to operate successfully.

Section 4 of the SEZ Act should clearly set out that government’s intention is to create a friendlier business environment. It needs to state unambiguously that the purpose of SEZs is to free businesses from onerous government regulation and give them the necessary room to operate without undue interference or tax.

The Act’s definitions of the SEZ designations of free ports, sector development zones and free trade zones are too narrow. The latter are merely defined as a duty free area offering storage and distribution facilities for value-adding activities within the SEZ for subsequent export. Nothing in the relevant clause (section 24) creates the impression that SEZs would be open to any kind of business that seeks to benefit from the friendlier business environment.

In its original March 2012 submission on the SEZ Bill, the FMF documented the key criteria that characterise successful SEZs globally. These include that an SEZ must not be subject to regulations and taxes that discourage growth and investment and that foreign exchange controls, labour laws, immigration controls, and minimum standards, should not apply in the SEZ. An SEZ must be fully “offshore” as the whole point of an SEZ is that it must not be ‘business-as-usual’.

For SEZs to succeed, the SEZ authority must be a ‘one stop shop’ empowered, without interference from other government departments, to grant exemption from laws and taxes that prevent free trade.

The FMF will be making ten submissions to the HLP before the 20 August deadline and will share these with the media.


Editor’s Notes

HIGH LEVEL PANEL ON THE ASSESSMENT OF KEY LEGISLATION (extract from the HLP call for submissions)

Parliament has appointed a High Level Panel whose mandate it is to investigate the impact of legislation in respect of the following areas:
a.     The Triple Challenges of Poverty, Unemployment and Inequality;
b.     The creation of, and equitable distribution of wealth;
c.     Land reform, restitution, redistribution and security of tenure;
d.     Nation building and social cohesion.

The legislation in question would include that which has the greatest direct impact on the citizens of South Africa, such as combating poverty, services and the delivery thereof, education, health, employment, housing, combating crime, social development and the legislation that seeks to protect and improve the lives of women and children.

The High Level Panel aims to review legislation, assess implementation, identify gaps and propose action steps that impact on specific areas. This will be done with a view to identifying laws that require strengthening, review and/or amending. In other words, this intervention will entail the identification of existing legislation that enables the transformational goals of the developmental state, as well as laws that impede this goal.

The outcome of the work of the High Level Panel will be a package of recommendations that will be considered by the South African Legislative Sector.

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