Development zones to boost poor regions?

Image: GCIS

These benefits include industry clustering, or targeted development. Upington, in the Northern Cape, is a natural choice for solar energy research and development. Saldanha Bay will service the growing oil and gas industry on Africa's west coast and expand SA's iron ore exports.

But proponents of free markets object to the idea that such zones be targeted. They say that rather, business should be able to identify areas of economic interest themselves and operate with minimal state interference, largely under the existing legal framework.

However, Economic Development Minister Ebrahim Patel told a Congress of South African Trade Unions dinner in Mpumalanga last week that the state would intensify implementation of various strategic and integrated development projects to promote job creation, fight poverty and reduce inequalities.

To this end, the Department of Trade and Industry is devising a number of regulations that will see the country's industrial development zones (IDZs) in Richards Bay, East London, and Coega, near Port Elizabeth, taken into a new special economic zones framework.

Free ports, free trade

This plan envisages zones including free ports, free trade zones, and sector development zones and means, for instance, the new Dube Trade Port, near Durban, will complement both the city's port and Richards Bay in handling output from SA's coal and platinum belts, spanning Gauteng, North West, Limpopo and Mpumalanga. It will also be part of a Gauteng-Free State-Durban logistics corridor.

As part of special zones legislation, such entities stand to benefit from new coal and gas finds stretching from Mozambique to Tanzania. They also stand to gain from the Brics (Brazil Russia, India, China, SA) alliance. But the targeted interventions of a "developmental state" will fall on stony ground unless the government quickly devises market-friendly incentives.

Last year, the Department of Trade and Industry acknowledged SA's existing IDZs had "not performed to requirements". It cited poor planning, a lack of support services, inadequate co-ordination among government agencies and stakeholders, and insufficient incentives for investors.

Its most recent presentation on special economic zones to Parliament's trade and industry committee has done little to suggest any progress on this, especially dispensations over labour costs.

While the Coega Development Corporation says that the IDZ has shown significant growth since the second half of last year, implementation of its projects remains pedestrian after 14 years - compounded perhaps by the effects of the global downturn.

Electricity concerns

Much can be blamed on concerns that Eskom cannot deliver enough electricity. Before being taken over by miner Rio Tinto, Canadian aluminium company Alcan pulled out of a proposed US$2.7bn smelter project in Coega. Since then, other energy-intensive projects for the IDZ, including two manganese smelters and a giant PetroSA refinery, have been held up over funding and environmental issues, among others.

While the special economic zones will be integrated into the country's long-term infrastructure plans, with R4trn budgeted to develop 18 strategic infrastructure projects over the next 15 years, many issues need to be ironed out: not least, facilitating a seamless interplay between the state and the private sector based on dynamic markets.

So far, much recent and proposed "economic" legislation has been condemned by business as being "so much more red tape".

SA has seen little major infrastructure spend since the end of the 2010 Soccer World Cup. But the state says it has learned valuable lessons from the building of the Gautrain, King Shaka airport near Durban, and Eskom's Medupi and Kusile power stations. This has come, in part, from hauling private enterprise before the Competition Commission to investigate collusion in the construction industry.

But for the government to get a real bang for its buck, it needs to clean up widespread corruption in state spending, especially at municipal level. The framework legislation for special economic zones follows laws encompassing preferential procurement, empowerment fronting, and business registration. However, the most immediate concern about these policies is that it will engender further corruption.

SA is developing rail co-operation deals with the Democratic Republic of Congo and landlocked Zambia and Zimbabwe, to allow the more efficient and cost-effective movement of goods across the borders of these mineral-rich countries. Because of the major coal and gas deposits in Mozambique, regional links to the ports of Maputo and Beira are also being upgraded.

There are many solid development plans in the pipeline, spanning SA and the southern African region. But many are in danger of being suffocated by bureaucracy. Efforts to fix SA's shortage of capacity will not be achieved by employing thousands more bureaucrats. This will only come from smart relationships with private enterprise.

Meanwhile, the Department of Trade and Industry acknowledged recently that the existing industrial development zones had not performed to expectations.

Source: Business Day via I-Net Bridge