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South Africa’s Special Economic Zones – a Primer - Blog

South Africa’s Special Economic Zones – a Primer

South Africa’s Special Economic Zones – a Primer

There are a select few areas in South Africa in which an aspirant industrialist can encounter relaxed business regulations, in order to produce and distribute manufactured goods, nationally and internationally. The South African government’s motivation for creating these manufacturing centres was to further the industrialisation of the country, draw in foreign capital (known by the acronym FDI), and bolster export-focused manufacturing.

There are a select few areas in South Africa in which an aspirant industrialist can encounter relaxed business regulations, in order to produce and distribute manufactured goods, nationally and internationally. The South African government’s motivation for creating these manufacturing centres was to further the industrialisation of the country, draw in foreign capital (known by the acronym FDI), and bolster export-focused manufacturing.

For a small to medium size businesses looking to expand their operations, especially to overseas, these so-called Special Economic Zones (SEZ) offer the entrepreneur an opportunity to develop in an incubated environment. The SEZ model is an import, an attempt to capture similar zones that have been successful overseas. India, for instance, has 187 such zones, as at February 2016. China has experienced a large degree of success in utilising the SEZ model, and as wages in China rise, Africa is being looked at as a new manufacturing power.

The SEZ Programme was started in 2007, and encompassed four zone categories. The forerunner of the SEZ in South Africa, which now fall under the SEZ umbrella, were Industrial Development Zones (IDZs). IDZs were first created in the early 2000s. There are currently five IDZs – Coega, in the Eastern Cape; East London, also in the Eastern Cape; Richards Bay in KwaZulu-Natal; Dube TradePort, also in KwaZulu-Natal; and, Saldanha Bay in the Western Cape. SEZs are being set up across South Africa, in an attempt to draw in diverse investment.

The first IDZ was Coega, a 115km2 plot located next to the Ngqura deep-water port, in the Nelson Mandela Metropolitan Municipality, in the Eastern Cape. In the last four years, Coega has secured investments totalling R32 billion across 54 investors. Its largest investment came from the Chinese car manufacturer BAIC, which in August 2016, signed a R11 billion deal. While deals of this size might seem alien to the smaller concerns of the small and medium business owner, they also present significant opportunities. The knock-on effects of such deals give rise to procurement opportunities for small business owners.

The benefits of locating your business in an SEZ are many, and the growth-focused entrepreneur owes it to themselves to consider whether their business might flourish with the benefit of the tax incentives and tariff exemptions. Among the key incentives available to businesses in SEZs are:

  • 15% corporate income tax rate, with further incentives dependent on fulfilling SEZ criteria
  • A building allowance, in the form of a tax rebate
  • Employee incentive – tax relief upon hitting employment figures
  • Reduced customs control
  • Investment support for new projects meeting certain capital expenditure targets – the minimum investment for Greenfield projects (new industrial projects that utilise only new and unused manufacturing assets) is R50m in qualifying assets, with investment support from the government reaching up to R900m if the project has ‘preferred’ status

 

IDZs have a more targeted set of incentives, including:

  • No customs duties for goods imported into the zone for raw material, goods for storage and goods used in the manufacturing process
  • Simplified customs procedures, meaning reduced times for clearing goods
  • Tax rebates on imported goods and machinery, raw materials, services rendered with the zone, and exported goods
  • Relief from import duties for any goods used in the improvement of the zone
  • Relief from Value-Added Tax for land, water, electricity, and construction materials used in the zone

 

While accruing the benefits of SEZs requires capital that is well beyond the reaches of many South African small business owners, there are opportunities for the savvy small business owner to cater to the large projects on the go at the SEZ. The ambitious small business owner might see the SEZ as a target towards which they can direct their efforts – the entrepreneurial mind sees opportunity for expansion where there’s room to grow.