A mixed bag: Presidential Investment Envoys speak up
It hasn’t been all smooth sailing in the four years since the first South African Investment Conference was held, Presidential Investment Envoy Jeff Radebe has admitted.
“Not all the pledges [from the previous investment conferences] have been honoured,” he told a gathering of businesspeople in Cape Town recently. “Economic challenges have conspired against these projects, but there have been some exceptional ones that have taken off.”
There is some excitement, however, as the South African Investment Conference will again take place in person after a hiatus of two years, necessitated mainly by the Covid-19 lockdown.
How did it all start?
Radebe explained how the idea for an investment conference came about, at the initiative of President Cyril Ramaphosa, who replaced former president Jacob Zuma in February 2018.
Radebe said in that year “we identified a scarcity of financial resources, a factor that for long has impeded growth in South Africa, especially of our local economy”.
How much has been raised?
He said this prompted Ramaphosa to embark on a mission to raise over $100 million — which at the time translated to R1.2 trillion — over a five-year period, “to inject much-needed capital into the South African economy”.
Thus far the conference, which had become an annual institution except during the Covid-19 lockdown, has raised R773 billion since its launch. “We are very confident that we shall indeed achieve this objective and raise the amount that we are committed to,” Radebe said.
Who’s who in the president’s investment team
- Jeff Radebe, who was minister for energy just before he retired from almost 25 years in Cabinet where he served in various portfolios, focuses on the energy sector, especially oil and gas.
- Derek Hanekom is a former tourism minister and focuses on the tourism sector.
- Elizabeth Thabethe, former deputy tourism minister, focuses on the tourism sector.
- Phumzile Langeni serves on the boards of a number of companies.
- Mcebisi Jonas, former deputy finance minister and MTN Group Chairman.
- Trevor Manuel, former long-serving finance minister, Planning Minister and Chairman of Old Mutual.
- Jacko Maree, Chairperson of the Liberty Group and Deputy Chair of the Standard Bank group.
- Kgosientso Ramokgopa, former Gauteng MEC for economic development, heads the Investment and Infrastructure Office in the Presidency.
How has the AfCFTA helped?
At the beginning of last year the African Continental Free Trade Area (AfCFTA) kicked in. This could make South Africa a more attractive investment destination as a gateway into the continent.
In a breakfast address about the conference earlier this month, Radebe said South Africa’s strategic position within the AfCFTA made it an attractive destination.
“Africa offers investors access to a market of more than one billion people with a gross domestic product that exceeds $2.6 trillion,” he noted. “Historic trade barriers are coming down and economic activities are increasingly conducted seamlessly across the continent. Africa is growing fast into an integrated investment destination.”
The AfCFTA brings together 55 African Union member states and it adds a new dimension to this year’s conference.
“Now we can demonstrate the significant advantages of investing in the South African economy and how returns can be multiplied through access to a much larger market,” he told the meeting.
South Africa has for long been the first choice of many foreign companies looking for a relatively stable country on the continent to establish their regional headquarters.
The access to quality infrastructure and connections to global supply networks are additional attractions. “Through our participation in AfCFTA, we have preferential access to African markets and a deep understanding of business conditions on the continent,” Radebe said.
Can we be positive after upheaval?
Jacko Maree, another Presidential Investment Envoy who is also Chairperson of the Liberty Group and Deputy Chair of the Standard Bank Group, spoke to Bruce Whitfield on Radio 702 about the investment conference in January. Following the riots in July last year, Maree said he had trouble convincing prospective investors to listen to him, but six months later things were looking up.
“I think people around the world are looking slightly more positively at the global economy, and looking for opportunities,” he said.
Are we getting closer to the goal?
Maree reckoned that reasonable progress had been made towards achieving the $100 million target, contrary to what is being said, but added that the real problem could be that the target was too low to actually kickstart the economy.
Maree says investment was the only way to really get the economy going. “If you think about it, [the] investment-to-GDP ratio is about 15 or 16%, and it should be closer to 25%, which means over and above what is happening, you need annual additional investment of R500 billion a year. The only way to unlock that is to create confidence and do the right thing.”
Some examples of this include changing the energy regulations last year to allow independent power producers to sell electricity, and the spectrum auction earlier this month.
Maree said within the governing ANC there has been a lot of opposition to the private sector playing the leading role in certain areas, but this is changing.
“If you look now for example at ports, rail and water infrastructure, there is a massive need. Many who were previously opposed to this are now saying, ‘we’ve got no option, we need the private sector and foreign investors to come in and help rebuild or expand some of this critical infrastructure that we need.’
“Ports are the obvious example where we have to make sure that we can get the big shipping lines wanting to use our facilities as opposed to perhaps sailing past.”
Maree said the big port operators around the world would very much like to help South Africa rebuild its ports — for a return.
“There’s quite a lot of corporate activity happening, [like] Toyota and the hybrid car investment of R3.4 billion; Tetrapak committed to an R500 million investment recently; Aspen has done about R3.4 billion of pharmaceutical development, and there are a lot of data centres being built, and undersea cables,” he said.
He said it’s not all doom and gloom at all; rather, it’s “deal by deal; it’s not a flood of investment coming into South Africa, but in specific sectors, where people can see an opportunity”. — Carien du Plessis
Top reasons for investing in South Africa
- South Africa is one of the most sophisticated and promising emerging markets; it has an affluent consumer base and a growing middle class.
- It has world-class tertiary education systems that produce a skilled, young, eager, talented and capable workforce with a diversified skills set.
- South Africa is the most industrialised and diversified economy on the continent.
- South Africa’s strategic position within the continental free trade area (AfCFTA) provides investors improved access to large global markets.
- South Africa’s emerging market abounds with opportunities with a focus on infrastructure development that includes transport, water, roads and electricity.
- South Africa is committed to the positioning and the implementing of innovative technology by realising the 4IR and its highly sophisticated ICT and electronics sector.
- South Africa is an attractive destination for investors located outside of the continent because they can locate their regional headquarters in the country, thanks to quality infrastructure and connections to global supply networks.
- The country offers a modern, productive, and diverse Agribusiness industry which consists of corporate and private intensive and extensive crop farming systems. These include vegetables, fruit, nuts and grain production.
- South Africa has an abundance of diversified natural resources, such as precious metal, refractory metal, base metal and energy mineral reserves.
- There is an ever-growing need for clean energy generation and new opportunities are just opening up in this regard. Electricity generation is expected to grow by 6 800MW over the medium term because of the Renewable Energy Independent Power Producer Procurement Programme.
- South Africa possesses over-advanced technologies to produce quality goods.
- Strong institutions: the South African Constitution and independent judiciary are progressive, providing certainty, respect for the rule of law and access to legal systems.
- The financial services and banking sector is sophisticated, making South Africa the continent’s financial hub.
- South Africa remains a top tourism destination because of its diverse offering, world-class infrastructure and positive global reputation.
ORTIA SEZ: In the business of helping businesses grow
Drawbacks have been major and plentiful in the past couple of years, but Maidei Matika, Chief Investment Facilitator of the Gauteng Industrial Development Zone (GIDZ), believes there is reason for optimism.
Business, after all, always finds a way.
For example, in 2019, just under a year before the Covid-19 pandemic hit the world, in2food opened its doors as the world’s second largest refrigeration plant and the biggest food processing operation in the southern hemisphere in the OR Tambo International Airport Special Economic Zone (ORTIA SEZ).
The production facility is 22 708 square metres in size and is located on 3.5 hectares of land on the northern precinct of the airport SEZ. The GIDZ Development Company was formed to develop and operate the ORTIA SEZ.
“Fresh foods are packaged there and the intention is to export to Europe,” Matika said. “This investor took a knock from the Covid-19 lockdown, but they have managed to continue servicing the domestic market.”
This was because in2foods had been a partner of Woolworths for almost three decades, and turned its business to servicing local chains; SEZs usually focus on exports.
“They managed to stay afloat,” said Matika, adding, tongue-in-cheek: “We all ate a little bit more during lockdown than we should have.”
The state-of-the-art project had a total development value of R381 million and created 600 jobs, while sustaining a further 5 000 jobs throughout the agricultural value chain.
The riots and looting that engulfed parts of KwaZulu-Natal and Gauteng in July last year presented further challenges, and it meant that the recovery path out of Covid-19 for the SEZ, as with so many other businesses, became somewhat of an uphill battle.
The SEZ, which focuses on high value, light-weight products that can be exported by air, also focuses on mineral beneficiation. The next two precincts (numbers two and three) will focus on the medical cluster and a fuel cell manufacturing facility.
“In February 2020 we had started with the construction of the jewellery precinct, which was the remainder of our first phase, but then Covid-19 was not kind to this project,” she said. “It was something we wanted to talk about, because there were some sensitivities from the investors we have secured.”
Some events could not take place, and a couple of people working on the construction of the site succumbed to Covid-19.
“Just as we thought things were getting better, some time last year came the July unrest, which also put a spanner in the works, because we had a delay,” she said.
“It’s been a rough road for the past 12 to 18 months, but we are back on track in that we have the support of the shareholder department — the MEC for economic development in the province [Parks Tau] and the Premier [David Makhura]. We have been able to secure the retention of the DBSA [Development Bank of South Africa] and the IDC [Industrial Development Corporation] and develop an accelerated delivery plan for this project,” Matika said. “We are quite excited about the fact that the remaining parts of this phase will be delivered by the end of this year.”
Despite the challenges posed by Covid-19, the anchor building of 7 000 square metres was finished in September last year. “It is a building that houses national key agencies and it is really at the nerve centre of the jewellery project. The jewellery precinct needs a cluster approach for it to work. We are clear that we need to provide a consolidated approach to investment for those players who play in this business.”
There is also an investor in the precinct that has put up a massive gold refinery with state-of-the-art technology that is new to South Africa.
“So we have delivered three buildings so far. The remaining six are under construction.”
The South African Investment Conference presents another big opportunity for the SEZ. Matika said they have submitted the fuel cells manufacturing project through the Department of Trade, Industry and Competition (DTIC) for the conference, and was hopeful that it would make the cut.
“It is by a domestic investor. It will be one of the first of its kind in South Africa and will be manufacturing fuel cell products for delivery to the global market. It will create a massive number of jobs: we are talking between 300 in phase one to over 1 700 as they expand.
This particular investment will also be able to drive not just fuel cells, but also support the hydrogen economy by being able to deliver products that will support the emergence of South Africa’s hydrogen industry — crucial for the development of the green economy. Once this precinct is fully operational they hope to have created 5 000 jobs, Matika said.
So far 2 300 operational jobs have been created in the SEZ, not counting the construction. Because the food factory is shift work and it operates 24/7, it’s been a massive and a positive job multiplier, Matika said.
There is hope that the remaining phase of precinct 1 in jewellery will create another 500 jobs.
Although the SEZ is a project that caters to national business, it works closely with the City of Ekurhuleni as its home metro. “With government there is a policy that 30% of the work for big construction should be subcontracted,” Matika said. “For the Gauteng IDZ that is 40%, with 10% ring-fenced for businesses in the metro. With that we ensure that we create opportunities for businesses within the City of Ekurhuleni to participate in the development phase of the Gauteng IDZ.”
The spirit of this cooperation continues even after the business is up and running. “We want to support business from Ekurhuleni: construction, facilities management programmes, security management programmes,” she said. This is, however, not prescriptive.
Matika said they work well with partners in the Gauteng government, and is also working at enhancing the relationship with Airports Company South Africa (ACSA). “The SEZ is a catalyst for regional development, and we must develop with an eye on that masterplan, but also on the plans of our partners,” she said.
The SEZ must become a tool to accelerate development and reindustralise. “In the context of a region, it must respond to regional challenges. You must understand what is the capacity of the region to deliver what you want: roads, air cargo, et cetera. All those are important and form part of the ecosystem in which the SEZ operates,” according to Matika.
She said it’s also necessary to find partners to support emerging enterprises, for example with the help of the Gauteng Enterprise Propeller. “We can give them a home, but someone else must give them the money, and someone else gives them the market offtake.”
But it’s not always easy. “Some of our challenges as Gauteng IDZ has been our ability to deliver timeously. That has been a challenge, but we are working very hard to address that, and to ensure that we deliver the SEZ precincts in a smart and efficient manner.”
Another challenge has also been to ensure that investors can access all the incentives that SEZs come with. “It is an ongoing discussion with DTIC on how to ensure that investors can access it,” she said.
The main tax benefit available to a qualifying company dealing with a SEZ is the reduced corporate tax from 27% to 15%, but it’s subject to approval from the finance minister. “Since 2020 only six SEZs have been given approval to access that incentive,” she said. “The OR Tambo SEZ was not one of the three. This has created problems for us and investors that were looking forward to it.”
The issue has been raised with the DTIC, which has since raised it with the National Treasury. “Discussions are ongoing and we are hoping to see a change.”
Another challenge is the recent war in the Ukraine, which could affect supply chains. Already there are predictions that it will affect wheat imports, and oil and fuel prices have been rising due to the anticipated shortages created by the conflict.
“You need to be agile in this business, and not just be able to respond to domestic challenges, but also the international climate. You need to be able to deliver a SEZ programme responsive to the needs of the investor, so that the investor can succeed,” Matika said.
“We are in the business of SEZs, but also in the business of facilitating growth for businesses.” — Carien du Plessis
ASEZCo speaks to the needs of investors in greentech manufacturing
Atlantis in the Western Cape has been prioritised as a greentech hub by all three tiers of government. The scheduling of the Atlantis Special Economic Zone (ASEZ) state-owned Company Limited as a provincial business enterprise was approved by the National Treasury on 20 December 2021. The Atlantis Special Economic Zone Company (ASEZCo) is driving sustainable development and job creation in the area by harnessing the opportunities in a growing green economy.
With its greentech theme, ASEZ is a unique SEZ that speaks to the needs of investors in greentech manufacturing. It is a key element in the Western Cape Government Economic Recovery Plan, and the scheduling of the company as a provincial business enterprise bodes very well for its role as a gamechanger in the renewable energy and green technology sectors of the Western Cape’s economy.
Atlantis is the ideal location from where to compete in Africa’s green technology markets. It is located within a transport corridor with easy access to two ports. It has a large manufacturing skills base, which continues to grow with the support of local and provincial governments, and low operational costs, especially for manufacturing businesses.
Nonfinancial incentives include single-point investment facilitation, including the Atlantis Investment Facilitation Office, and development application fast-tracking for land use applications, building plan submissions, and occupancy certificates. Financial incentives include development application fee exemptions for land-use applications and building plan submissions, a special electricity incentive for medium and large power users, and development contribution deferral/debt write-off (capped at R1 million per investment).
The ASEZ offers industrial-zoned land, strong support from government, and mutually beneficial business relationships in which investors work closely together to improve on their bottom line. The Living Lab approach to doing business in the Atlantis Special Economic Zone makes it globally competitive and provides a suitable location for investors to meet the rigorous demands of commitments set out by the EU at COP26.
Establishing your investment in the ASEZ means that you operate your business utilising renewable energy provided to you by the ASEZCo, and you subscribe to under-utilised resource sharing through implementation of GreenCape’s Western Cape Industrial Symbiosis Programme. In addition, investors benefit from a “one-stop-shop” approach to doing business, as the ASEZCo forms part of an investor-friendly ecosystem comprising award-winning organisations such as GreenCape, Wesgro, InvestCT (City of Cape Town’s Investment Facilitation Unit) and InvestSA (Department of Trade, Industry and Competition’s Investment Promotion arm).
All of these organisations work closely together to make sure that your investor journey from entry and establishment to growth, expansion and linkage creation, is nothing but smooth, clear and efficient. A considerably favourable ease-of-doing-business environment exists in the region.
“The ASEZCo has the ability to leverage national government funding to provide world-class infrastructure to investors and partners looking to manufacture their green technologies in the most efficient and environmentally friendly manner in Africa. With the provision of renewable energy, fibre internet connectivity and recycled water, the resource-efficient manner in which green technology manufacturers can manufacture their goods adds additional value to their product at the global level. The demand for responsibly manufactured goods is on the rise globally, with consumers being more mindful of the impacts of production on the environment,” said Jarrod Lyons, Executive: Business Development.
“The Atlantis Special Economic Zone is a well-run investment destination, which additionally adds a degree of energy security, good access to ports and transport infrastructure and has multiple Nett Zero targets over the next eight to 15 years. Provision of Green Building Council (GBCSA) Certified top structures are a first in the industrial space too. This level of investor support is second to none, and we encourage you to explore Africa’s first greentech destination of choice for your manufacturing activities.”
Investments and climate: What to do when things go pear-shaped?
Local is lekker
Trudi Makhaya, Economic Advisor to President Cyril Ramaphosa, has been thinking carefully about the fall-out for South Africa as a result of the ongoing conflict.
A disruption in international markets and supply chains could give South Africa a chance to focus inwards, a refrain that was also heard during the hard lockdown during the Covid-19 pandemic in 2020.
“We’ve always said that the base of investment is domestic investment,” she told SABC earlier this month. “It’s important that local investors are showcased and encouraged, and incentivised to invest.”
She said a conflict like the one in Ukraine “reminds us why our fundamentals have to be right domestically”.
Foreign investment plays an important role, and globalisation is important, “but one also has to have a certain degree of self-sufficiency, so we will be showcasing a lot of domestic investments in that regard”.
Recovery is an uphill battle
Hope was just starting to kick in for South Africa’s post-pandemic recovery when this war broke out. “We were already seeing some green shoots in terms of GDP, with some recovery and employment, “but there was always the prospect of risks such as this setting us back”, according to Makhaya.
Having a resilient economy, too, is important for sustaining those shocks.
“It is unfortunate that this is happening at this stage, but we have to constantly be aware of the risks that we face in the global economy,” she said.
More contentiously, she said: “Some of the structures that keep the global economy together like the payment system have become politicised.”
Some of the sanctions against Russia have affected the payment systems, which means Russia can no longer do business with those outside its borders as it has to get paid through the wires. “Going forward we are going to have to think carefully about how we ensure that some of the plumbing, the logistics, the financial architecture of the global economy doesn’t get drawn into conflict,” she said.
Although a lot of the projects that came out of previous presidential investment summits have succeeded or are ongoing, 15 “have been put on hold, or have faced some level of challenge”.
Africa’s first Android smartphone
One of the investments facing difficulties since being announcing with much fanfare at the 2018 conference, and launched at the Dube Trade Port in Ethekwini a year later, is the Mara Phone Plant.
“We went into this knowing that not all projects are going to be successful,” Makhaya said.
“The general approach that we have with this is that we try to work with the company as far as is possible.”
Government can provide support if there are policy issues, but in some instances there is nothing government can do. “Any investor takes a risk when they enter a market, and if that doesn’t work out, there is nothing much that can be done.”
— Carien du Plessis
They said it: Special economic zones are driving provinces
Eastern Cape Premier Lubabalo Oscar Mabuyane, on the Coega Special Economic Zone in his State of the Province Address, 17 February 2022
“The Coega SEZ was recently chosen by Hive Hydrogen SA as the location of a Green Hydrogen project that will be fully operational by 2026. The project entails the construction of about R69.6 billion green ammonia plant with its own dedicated green power supply. This is a game changer project for our province and the country, as it will boost the Coega SEZ’s value proposition platform for sustainable investments.”
Western Cape Premier Alan Winde on the Atlantis SEZ in his State of the Province Address, 15 February 2022
“The Atlantis Special Economic Zone (SEZ) has now completed the last milestone required to become fully operational. The SEZ is now able to transact with investors, tenants and partners towards creating jobs, increasing business revenue and stimulating the Western Cape economy. The Atlantis Special Economic Zone for Green Technology and the Saldanha Bay Industrial Development Zone demonstrate exactly what is possible when you ensure infrastructure-focused, private-sector friendly policies. We will continue to invest in these hubs.”
Mpumalanga Premier Refilwe Mtsweni-Tsipane on the Nkomazi SEZ in her State of the Province Address, 25 February 2022
“The Nkomazi Special Economic Zone (SEZ) in Nkomazi municipality and the Petrochemical Industrial Technology Park in Govan Mbeki municipality will stimulate economic growth, alleviate poverty and reduce unemployment, including enhancing the requisite skills demanded by the provincial economy … These projects offer investment opportunities for companies in agro-processing, logistics, chemical industries, training sectors, warehousing, office space, conference and incubation facilities. In addition, these projects will also facilitate the export of commodities through, among others, South African ports, including the Maputo Port or air transportation to foreign markets using Mpumalanga Kruger International Airport.”
KwaZulu-Natal Premier, Sihle Zikalala, on the Richards Bay IDZ and Dube Tradeport in his State of the Province Address 27 February 2021
“Dube TradePort has been working hard on unlocking an Automotive Supplier Park to support the localisation of automotive suppliers to create 3 000 direct jobs. Recently, an initiative was undertaken with Transnet to fast-track the first phase of the project in order to meet the requirements of Toyota within their planned production programme … The administration had also secured industrial land in Ezakheni, in Ladysmith, to develop a fully-fledged clothing and textile SEZ, which will be operated by the Dube TradePort, while the provincial government has successfully attracted investments worth R780 million from companies interested to locate within the SEZ.”
Free State Premier Sisi Ntombela on the Maluti-a-Phofung SEZ in her State of the Province Address, 2 March 2021
“Industrialisation in areas such as Maluti-a-Phofung, Botshabelo and Thaba Nchu is a key lever in the strategy for ongoing stimulation of our provincial economy. Manufacturing is the source of economic growth and we want to tap into its potential to grow this sector in the province. We have secured over one billion rands investment in the Maluti-a-Phofung Special Economic Zone. Although it is located in Maluti-a-Phofung, the Special Economic Zone is for the benefit of the entire province. Its success is the success of the province.”
Gauteng Premier David Makhura on the OR Tambo SEZ and Tshwane Automotive Special Economic Zone in his State of the Province Address 21 February 2022
“The construction of the next phase of OR Tambo SEZ remains on track, albeit with challenges. We are engaging our anchor tenants, such as the De Beers Diamonds and In2Food Factory, to consider expanding their portfolio of investment to grow the economy and create more job opportunities … Billions of rand have been injected into the Tshwane automotive special economic zone (SEZ) and we are expecting to create thousands of jobs to benefit the local small businesses and the community of Mamelodi. Three spheres of government are investing R3.3 billion into the project’s infrastructure. This gesture by the government has unlocked R4.3 billion worth of investment by suppliers and a further R15.8 billion investment announced by Ford Motor Company on 8 February.”
Limpopo premier Stan Mathabatha on the Musina/ Makhado SEZ in his State of the Province Address 24 February 2022
“When the projects get off the ground, the SEZs are expected to create 21 000 jobs for unemployed youth, adults, women and people living with disabilities. More than R500 million have been set aside for the SEZs in Musina and Makhado in Limpopo … The manufacturing, agro-processing and logistics hubs of the project are finally taking off. We are well on track in turning the Musina-Makhado corridor into a melting pot of industrial activity.”
North West Premier Bushy Maape on the Bojanala SEZ in his State of the Province Address, 18 February 2022
“As part of creating job opportunities in our province, we will pursue efforts to realise the establishment of the Bojanala Special Economic Zone. The Office of the Premier will drive the successful operationalisation of the SEZ working with the Department of Economic Development, Environment, Conservation and Tourism.”
How government encourages businesses to invest in SEZs
Investing in Special Economic Zone (SEZs) comes with incentives, and businesses operating from such a zone qualify for a number of benefits. This is to promote growth, revenue generation, job creation, foreign direct investment and international competitiveness.
The Department of Trade, Industry and Competitiveness (DTIC) has outlined five reasons why businesses should consider investing in a SEZ. Businesses in some SEZs qualify for tax relief: a preferential corporate tax of 15% rather than 27%, which is subject to approval by the minister of finance after consultation with the minister of trade, industry and competition.
This relief is available until 2024. Some conditions include that the company must be incorporated or effectively managed in South Africa and at least 90% of the income must be derived from business in the SEZ. Companies not entitled to this allowance are those engaged in business involving spirits and alcohol, as well as beer, malt liquors and malt, tobacco products, arms and ammunition and biofuels, if their manufacture negatively impacts food security in South Africa.
They also get a building allowance, which makes businesses eligible for an accelerated depreciation allowance on buildings and capital structures, but this also has to be approved by the minister of finance after consultation with the DTIC minister. This allowance is available for erecting or improving buildings and other fixed structures at a rate of 10% per annum over 10 years. Companies not entitled to this allowance are the same as those listed above.
Then there is an employment incentive aimed at employers who employ workers who earn below R60 000 per annum. The incentive is to encourage employers to hire young people who might not have as much experience, but for an SEZ the age restriction will not apply. This incentive reduces the cost to the business, as the cost of the employee’s salary is in effect shared with the government, while leaving the wage the employee receives unaffected.
Value-added tax relief is available for those who operate within a customs controlled area. This includes an import duty rebate and value-added tax (VAT) exception on imports of production-related raw materials, including machinery and assets, to be used in production with the aim of exporting the finished products. VAT can also be suspended under certain conditions for supplies procured in South Africa, and businesses are also entitled to an efficient and expedited customs administration.
There is also a tax incentive for greenfield investments, meaning new industrial projects that utilise only new and unused manufacturing assets, as well as brownfield investments, meaning expansions or upgrades of existing industrial projects. This is a new incentive that offers support for both capital investment and training.
The SEZ Act and SEZ Policy encourage the private sector to play an active role in the SEZ programme. Public-private partnerships in the development, operation and management of SEZs are envisaged. There are a number of possible models, such as the assembly of land parcels with secure title and development 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; and contracting private management for government-owned zones or the lease of government-owned assets by a private operator.
— Carien du Plessis
IDC is bullish about Africa’s growth prospects
As member states accelerate the implementation of the Africa Continental Free Trade Area (AfCFTA), a trade bloc which brings together 54 member states of the African Union, the discussion around its benefits is becoming more robust.
Among other objectives, AfCFTA aims to grow intra-continental trade and boost Africa’s standing in the global market. The trade bloc and its significance to the continent will certainly dominate some of the discussions at the fourth South African Investment Conference (SAIC).
Trade between African countries is not at the levels it could be, and the benefits of trading with the rest of Africa far outweigh the risks. We can rightly justify the significant magnitude of AfCFTA’s counter-cyclical impact in light of the challenging conditions that our economy currently faces.
AfCFTA offers investors access to an integrated single trade and investment market of more than 1.3 billion people, with a gross domestic product that is estimated to exceed $3.5 trillion by 2025. Right now, however, there is little evidence to suggest that this potential is being adequately recognised. At present, intra-African trade is very low, estimated at around 15%, compared to 67% in Europe, 61% in Asia and 47% in North America.
By effectively creating an enlarged regional market, this trade bloc could offer long-term economic benefits by catalysing greater development of cross-border infrastructure, incentivising economic diversification and boosting institutional quality. Regional trade will enable companies to develop economies of scale and create opportunities for cross-border cooperation to develop; for example, integrated value chains and the provision of critical logistical services, resulting in increased investment activity.
Other potential benefits and opportunities that will be derived from the AfCFTA include: opening up new markets for South Africa in terms of both trade and investment; improved access to raw materials and intermediate inputs; additional opportunities for in-country value addition, thus elevating the positioning of individual economies in global value chains; expanding industrial capacity and job creation; and, among others, opportunities to develop strong regional value chains.
Improved access to markets across the African continent will result in increased competition and innovation. AfCFTA has created a free trade area that may eventually develop into a continent-wide customs union and facilitate the movement of capital and people between countries. AfCFTA is expected to increase intra-African trade in transport services by nearly 50%, according to the latest estimates by the Economic Commission for Africa (ECA).
Among other benefits of AfCFTA, the continent’s wealth of natural and mineral resources can now be utilised to build industrial capacity, diversify productive structures and raise the growth potential of individual economies, creating in the process a huge market that will attract foreign investors to locate their production facilities on the continent.
For the Industrial Development Corporation (IDC), AfCFTA symbolises the emergence of a more assertive continent that no longer mainly exports raw materials and imports finished goods. The bolstering of trade ties between countries will strengthen Africa’s industrial base and open up opportunities for the continent to become more self-sufficient.
It is indisputable that increased growth will inevitably lead to new prospects for emerging entrepreneurs and small- and medium-sized enterprises. With policy and other support, such as ecosystem and financial support, this can empower women and boost the potential of the youth — the fastest-growing segment of the African population — to find work and realise entrepreneurial opportunities.
The IDC’s confidence in the continent is demonstrated by large investments into Mozambique in the 1990s, an economy that was then considered risky given that the country was emerging from a taxing civil war. In partnership with other foreign investors, the IDC invested in the establishment of Mozal, an aluminium smelter in Maputo’s Beluluane Industrial Park. Our investment in this venture rates as one of the biggest flagship projects on the continent. Since commencing operations, Mozal has grown to become the single largest contributor to Mozambique’s GDP.
IDC’s portfolio of investment on the African continent, outside of South Africa’s borders, is currently valued at R19.5 billion (market cost) across 17 countries, and spans several sectors of economic activity. Over the years, the Corporation has also helped pave the way for several South African companies drawn from the telecoms, retail, agriculture, manufacturing and mining sectors, among others, to establish a strong presence on the continent.
Our experience of doing business in the rest of the continent is the reason for our optimism regarding AfCFTA’s benefits. We remain steadfast in our belief that now is the time to boost intra-trade, industrialise and create employment opportunities.
— TP Nchocho is CEO of the Industrial Development Corporation
Potential benefits of AfCFTA
- Increased productivity offered by competition through trade;
- Increased business efficiency through tariff liberalization and removal of non-tariff barriers;
- Increased business opportunities through exposure to B2B networking and consumption both within Africa and outside the continent;
- Enhanced trust and reliability to business partners through entries in business and export directories;
- Large, loyal & growing customer base through Made in Africa brand;
- Increased productivity offered by competition through trade;
- Increased business efficiency through tariff liberalization and removal of non-tariff barriers;
- Increased business opportunities through exposure to B2B networking and consumption both within Africa and outside the continent;
- Enhanced trust and reliability to business partners through entries in business and export directories.