Special economic zones (SEZs) in South Africa have not fully lived up to their potential — as has been the case in many African countries — to create jobs, beneficiate raw materials, develop new industries and transfer skills and technology from foreign companies.
There are aspects of South Africa’s SEZ model that clearly need to change, one being that the zones must be made to fit within a long-term development plan rather than be ad hoc projects, which many of the country’s SEZs are.
Before special economic zones are considered as a catalyst for development, it is critical to assess the country’s comparative advantages. In other words, what it can do with domestic resources, capital and skills, and what will need to be built with outside help. As part of this, a comprehensive analysis of the country’s position in the global economy, trade and supply chains is required.
There must also be a business case for establishing SEZs. If the intention, for example, is to attract foreign direct investment, the objective must be integrated into a long-term national development plan.
This means there must be a global demand and market for the products manufactured in these zones, and they must be embedded in the country’s comparative advantage. An SEZ cannot be established based on political, ideological and interest-group considerations — as many special economic zones in South Africa have been.
There must also be pragmatic and credible laws, regulations and institutional frameworks to govern SEZs. And governments must implement these consistently, honestly and competently to foster investor, market and society confidence that SEZs are not simply another avenue for corruption, self-enrichment and failure. The business environment must be conducive, efficient and friendly. The costs of doing business — registration, logistics and customs — should be conducive to companies setting up.
Public infrastructure — power, rail and water — for SEZs must be working, reliable and cost effective. Poor, unreliable or no infrastructure is a significant factor increasing the costs of doing business, global pricing competitiveness of products manufactured and of labour.
Sound infrastructure is a vital competitive advantage for investors to set up shop. The neglect and collapse of infrastructure linked to power outages, the broken rail system and port delays have undermined the competitiveness of South Africa’s SEZs.
The zones could be fully government-owned — as is the case with many in South Africa — or privately owned or public-private arrangements.
In developing countries, the state-owned SEZs have mostly failed because the public sector’s governance failures such as corruption, incompetence and red tape are repeated in these zones. Public-private arrangements, in which the private sector co-govern and co-manage, have generally been the most successful.
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