The Department of Trade and Industry’s (DTI’s) initiative to create special economic zones (SEZs) may potentially provide significant and sustained economic benefits, but is also fraught with pitfalls that could undermine its efficacy, Free Market Foundation executive director Leon Louw said on Monday.

Having studied and written about SEZs across the world, Louw said that thousands of SEZs, which included special trade zones of all kinds, were failures.

Speaking at an Africa Institute of South Africa seminar on SEZs, he said South Africa had already had a number of unsuccessful initiatives over the past 50 years, including the Apartheid-era ‘growth points’ and ‘border industries’, as well as more recent industrial development zone (IDZ) projects at Coega in the Eastern Cape, Richard’s Bay in KwaZulu-Natal and the OR Tambo International Airport in Gauteng.

“These projects are all failures, owing to none of them attracting substantial, profitable and sustainable investments, while a common trend among international failed SEZs were that they consumed more investment in infrastructure, subsidies and concessions than what they were able to produce,” Louw said.

The Department of Trade and Industry (DTI) recently concluded a 60-day comment period in which it held public hearings with regard to giving organised business, labour and the public an opportunity to voice their views on the SEZ Bill and policy, which was gazetted by Trade and Industry Minister Rob Davies on January 23.

The DTI said the purpose of the Bill was to broaden the scope and composition of dedicated industrial areas in South Africa and to support industrial decentralisation.

However, Louw said that in order for prospective investors to take any SEZ seriously, the zone should be classed as ‘offshore’, resulting in the host country’s normal laws and policies being amendable to conform with specific industrial, trading and foreign exchange requirements the zone may need.

“SEZs should not be viewed as geographical areas, but rather be conferred on certain industries, being required to submit specialised audits.

“However, the creation of new SEZs in South Africa could be also be undermined by government officialdom and the bureaucracy being inefficient at identifying appropriate locations for new SEZs, or managing them properly,” he added.

Louw highlighted a number of elements he believed government should consider for SEZs to work. These included reviewing measures such as the total abolishment of foreign exchange control, guarantees of security, reviewing policies which could be considered as ‘red tape’ including the Consumer Protection Act, the National Credit Act, and the Financial Advisory and Intermediary Services Act.

Meanwhile, Congress of South African Trade Unions economic policy adviser Professor Christopher Malekane said that the union would not oppose the creation of SEZs.

“As long as the wealth and life quality of the people working at SEZs increase and an amenable relationship between the employer and employee is maintained, we believe SEZs to be progressive and beneficial to workers,” he said.

Malekane pointed out that the creation of SEZs should be accompanied by the implementation of new technologies and knowledge transfer, giving the targeted local companies access to the global value chain.

He added that the SEZs would contribute to decentralising economic activity to afford rural residents better opportunities of decent employment, while urging government to focus on establishing a thriving manufacturing sector, which ultimately results in a services-based economy.

Malekane also insisted that the State should lead with the implementation of the SEZs, ensuring the availability of resources, access to finance and by providing infrastructure.