Special Economic Zone (SEZ)
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?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.
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:
The Atlantis SEZ is part of the City of Cape Town’s initiative taken in 2011 to establish a greentech manufacturing hub in Atlantis. This was in response to the Department of Energy’s Renewable Energy Independent Power Producer Programme (REIPPP). Localisation of manufacturing and the resultant job creation is one of the key priorities of Government through the REIPP programme. Situated on the West Coast of South Africa, 40km from Cape Town, the Atlantis SEZ (ASEZ) capitalises on the province’s already booming renewable energy and green technology sector. Greentech refers to green technologies that reduce or reverse the impact of people on the planet. This includes renewable energy technologies. Wind turbines, solar panels, insulation, biofuels, electric vehicles, materials recycling and green building materials are all examples of green technology. The hub has already attracted its first large greentech investor, Gestamp Renewable Industries (GRI). A wind tower manufacturer, GRI has already invested R300 million and is in full-scale production. For more information, visit?www.greencape.co.za
The Nkomazi SEZ is located in the Nkomazi Local Municipality which is in the eastern part of Ehlanzeni District Municipality and approximately 65km of the central business district of Nelspruit in Mpumalanga Province. The geographic location of the Nkomazi area is its main competitive advantage. The Nkomazi area is strategically placed between northern Swaziland and the southwest of Mozambique. It is linked to Swaziland by two national roads, the R570 and R571 and with Mozambique by a railway line and the national road the N4 which together form the Maputo Corridor. For more information visit:?www.nkomazisez.co.za
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
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
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 Town. It is one of the first IDZs in South Africa to be operational and represents an ideal choice for the location of exported manufacturing and processing. Its location provides investors with connections to major markets, locally and across the globe.
For more information visit?www.elidz.co.za
Saldanha Bay IDZ
President Jacob Zuma launched the Saldanha Bay Industrial Development Zone (IDZ) and handed over the operator permit on 31 October 2013 at Saldanha Bay in the Western Cape Province. It is envisioned that this newly established IDZ will serve as the primary oil, gas and Marine Repair engineering and logistics services complex in Africa, servicing the needs of the upstream Oil Exploration Industry and Production service companies operating in the oil and gas fields off Sub-Saharan Africa. Situated approximately two hours north of Cape Town. The SBIDZ will include logistics, repairs and maintenance, and fabrication activities.
For more information visit?www.sbidz.co.za
Dube TradePort is a catalyst for global trade and a portal between KwaZulu-Natal and the world. It is the only facility in Africa that brings together an international airport, a cargo terminal, warehousing, offices, a retail sector, hotels, and an agricultural area. Located 30km north of Durban, Dube TradePort is positioned between the two biggest sea ports in Southern Africa, and linked to the rest of Africa by road and rail.
Areas that have been designated as the Industrial Development Zone are the?Dube TradeZone?and the?Dube AgriZone.
Dube TradeZone?– aims to focus on manufacturing and value-addition primarily for automotive, electronics and fashion garments. The facility involves warehousing, manufacturing, assembling real estate resource, complete with a single facility in which all freight forwarders and shippers are located (Dube TradeHouse), which enjoys a direct link to the adjacent Dube Cargo Terminal via an elevated cargo conveyor system.
Dube AgriZone?– A high-tech, future farming facility and host to the continent’s largest climate-controlled growing area under glass will focus on high-value, niche agricultural and horticultural products. The AgriLab will look into specialised tissue culture, greenhouses, flowers and plants, all of which require swift air transportation.
For more information visit?www.dubetradeport.co.za
Maluti – A- Phofung SEZ
Maluti-A-Phofung SEZ in Harrismith, Free State, lies at the mid-point of the crucial Durban-Johannesburg logistics route. This newly established SEZ offers exporters a logistics base that facilitates access to the Port of Durban, and intermodal logistics solutions for the transfer of freight between road and rail. The zone is well-suited and licensed for general manufacturing, offering a convenient production base for light and medium manufacturing. With excellent logistics links by road or rail to South Africa’s industrial heartland, the Port of Durban and the southern Bloemfontein-Cape Town route, the SEZ is a natural choice for investors seeking a cost-effective location to service domestic and export markets.
In addition, the SEZ intends building on existing strengths to attract agro-processing industries to an area that has good access to the products of the agriculturally rich Free State. It harbours intentions of acting as an agglomeration, storage and logistics point for agricultural produce. Owned by the Free State Development Corporation, this site has existing facilities that can be leased immediately, and is currently upgrading both the internal road and utility infrastructure to meet expected demand.
For more information visit?www.fdc.co.za/
OR Tambo SEZ
The OR Tambo IDZ aims to develop land around OR Tambo International Airport to stimulate economic development through the use of the IDZ mechanism. The OR Tambo IDZ supports the growth of the beneficiation of precious metals and minerals sector, with a focus on light, high-margin, export-oriented manufacturing of South African precious and semi-precious metals. The multi-site development at OR Tambo IDZ consists of several industry-specific precincts and will be developed in phases over a 10- to 15-year period.
For more information visit?www.ggda.co.za/
Musina/ Makhado SEZ
The Musina/Makhado SEZ comprises two geographical locations that address unique industrial clusters. The site in Musina targets the light industrial and agro-processing clusters, while the Makhado site is a metallurgical/mineral beneficiation complex. A third site has been identified to target the petrochemical industries.
The SEZ is strategically located along the N1 North-South route into the Southern African Development Community (SADC), very close to the border between South Africa and Zimbabwe. It forms part of the Trans-Limpopo Spatial Development Initiative (SDI) and has been developed as part of greater regional plans to unlock investment and economic growth and address the development of skills and employment. Newly built infrastructure enables full utilisation of the area’s unique combination of mineral endowments and supports industries in the full-value chains for mineral beneficiation, agro-processing and light industrial manufacturing.
The strategic location of the SEZ and its close proximity to the main land-based route into SADC and the African continent, together with supporting incentives and a good logistics backbone, will make it the location of choice for investment in the mineral beneficiation, agro-processing and petrochemical industries.
For more information visit?www.lieda.co.za
Special Economic Zone Fund
Given longer term funding constraints, the SEZ Act and the SEZ draft strategy encourages the private sector to play an active role in the South African Special Economic Zones Programme. The SEZ Act envisages public private partnerships in the development and operation of Special Economic Zones. This offers the potential for a number of different models involving:
- Assembly of land parcels with secure title and development rights by the government for lease to private zone development groups;
- Build – operate- transfer approaches to onsite zone infrastructure and facilities with government guarantees and/or financial support;
- Contracting private management for government owned zones or lease of government owned assets by a private operator.
A SEZ fund intends providing multi-year funding for SEZ infrastructure and related operator performance improvement initiatives aimed at accelerating growth of manufacturing and internationally traded service operations, to be located within the designated zones.
The primary objective is to provide capital towards bulk and related infrastructure that leverages investment from third parties, through foreign and local direct investment in both the operations of such enterprises and the infrastructure required. A secondary focus is to provide limited operator and investor project financial and advisory support to affirm the feasibility of such projects and for work that will measurably improve the efficiency and effectiveness of SEZs to improve the competitiveness and sustainability of SEZ’s and their supply chains.
This industrial infrastructure is expected to leverage FDI and private investment and achieve:
- Increased exports of value added products;
- Measurable improvement in levels of localisation and related value chains;
- Increased beneficiation of mineral and agricultural resources;
- Increased flow of foreign direct investment;
- Increased job opportunities; and
- Creation of industrial hubs, clusters and value chains in underdeveloped areas.
The SEZ Fund will be available for pre and post designation to:
- Applicants that are currently operating an IDZ with a valid operator permit, subject to confirmation that an investor that requires infrastructure support has been signed and the investment is in line with the programme objectives;
- Applicants in the process of setting up an SEZ subject to submission of a comprehensive business/concept proposal determining clear socio-economic benefits;
- Applicants that are Licensees in terms of Chapter 5 of the SEZ Act;
- SEZ operators in terms of the SEZ Act and;
- A registered entity in South Africa in terms of the Companies Act.
The Special Economic Zone Fund is effective from 1 July 2013.
The applicant will not qualify for the following costs:
- Selected top structures;
- Customised factory buildings for investors;
- General infrastructure outside the zone;
- Social and recreational infrastructure;
- Residential buildings and office parks; and
- Operational expenditure (post designation).
Each individual investment project will be considered on its merits through a holistic investment appraisal and due diligence process in determining an appropriate blend of:
- Financial return and leverage from the economic success of each specific opportunity and;
- Non-financial return in the form of the level of localisation, additionality, economic, environmental and social impact aligned with strategic SEZ priorities.
For private financiers, SEZ investor projects provide scope for participation in debt and equity financing arrangements to cover:
- Top Structures (both generic and customised);
- Machinery & Equipment;
- Research & Development initiatives.
Upon meeting the criteria, and once the application is approved by the Adjudication Committee for funding, the Deputy Director General: Incentive Development and Administrative Division enters into a funding agreement with the applicant followed by on-going monitoring and impact analysis.
Enquiries and applications for the SEZ fund may be submitted to:?SEZfund@thedti.gov.za
How to apply for consideration as a Special Economic Zone
Applications for designation of a zone as an SEZ, received from national, provincial or municipal authorities or Public Private Partnerships (PPP), are processed against defined criteria for recommendation by the Special Economic Zones Advisory Board to the Minister of?the dti.
Once a zone has been designated and licensed and an operator permit issued, all requests from an SEZ for funding of new infrastructure as set out in the funding guidelines, will be processed and monitored by?the dti?on a project by project basis.
Once designated, infrastructure funding could be applied for and assessed for recommendation to the Adjudication Committee, if deemed viable and meeting the strategic intent and qualification criteria of the SEZ fund.
Once the applicant is approved by the Adjudication Committee for funding, the Deputy Director General (DDG): Incentive Development and Administration Division (IDAD) enters into a Funding Agreement with the applicant followed by on-going monitoring and impact analysis.
Enquiries and clarifications on the SEZ Applications Process may be submitted to: :
The SEZ Policy and Planning
Special Economic Zones Technical Advisory Services
In order to create and retain sustainable and high impact SEZs with more predictable utility and asset life cycle cost as well as a stronger focus on renewable utility service, the SEZ team, also provides the following services;
- SEZ funding application processing and appraisal;
- Investor Project Feasibility management and project due diligence reviews;
- Technical support to applicants on project finance and PPP options and guidelines;
- Signposting for non SEZ funding requirements;
- SEZ project engineering support;
- Sectoral, value chain, technical and built environment assessment of all SEZ fund applications;
- Advice on utility cost reduction and supply reliability improvement and maintenance SEZ funding framework and model development and;
- SEZ value for money audits and progress reporting on the socio economic impact of SEZ funding.
Important SEZ Related Links
- SEZ Fact Sheet;
- SEZ Advisory Board Annual Report;
- SEZ Tax Incentives Guidelines;
- Guidelines on Transitional Measures for Industrial Development Zones?;
- SEZ Act No. 16 of 2014;
- SEZ Regulations;
- The SEZ Policy;
- the dti‘s Special Economic Zones Tax Incentive Guide;
- South African Special Economic and Industrial Development Zones Brochure;
- SEZ Governance and Management Regulations;
- SEZ Performance Monitoring and Evaluation Framework;
- SEZ Excluded Activities;
- South Africa’s Top 10 Industries;
- Industrial Policy Action Plan (IPAP 2018/19-2020/21);
- Government Investment Incentives;
For other Industrial Development Incentives and Financial Assistance offered by?the dti?and International Trade Administration Commission of South Africa (ITAC), please click on this?link?or view the ITAC brochure?here.
For any additional questions/enquiries regarding SEZs, kindly contact:?SEZenquiries@thedti.gov.za