Assessing the Legal and Regulatory Framework for Special Economic Zones in South Africa

• Citation: (2022) 34 SA Merc LJ 229
• DOI: https://doi.org/10.47348/SAMLJ/v34/i2a4
• Published date: 01 February 2023
• Pages: 229-267
• Author: Qumba, M.F.
• Date: 01 February 2023

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ASSESSING THE LEGAL AND REGULATORY

FRAMEWORK FOR SPECIAL ECONOMIC

ZONES IN SOUTH AFRICA

MMISELO FREEDOM QUMBA*

Lecturer, Department of Mercantile Law, University of the Free State

Abstract

The previous industrial development zones (IDZs) programme did not

generate the anticipated economic growth in South Africa. Thus, the

recent special economic zones (SEZs) programme is aimed at

addressing the deficiencies in the disappointing record of the IDZs. So,

would the new SEZ programme succeed if the IDZs failed? Since the

IDZ is considered to have failed to generate the expected levels of

economic growth, it is important assess whether the new SEZ

programme will be able to fulfil its intended objectives. Therefore, the

purpose of this article is to provide an insightful analysis of the South

African SEZ programme from a legal and policy perspective and to

proffer some reforms in areas that may be pertinent for the success of

the SEZ programme. It traces South Africa’s experience with the IDZs

and related industrial policies by assessing how the country has fared

so far, looking at its transition from the IDZs to the SEZs and analyses

the potential challenges it is likely to face in the future. It adopts a

comparative method of analysis by examining key issues confronting

SEZs in South Africa, India, and China. In particular, the article

compares only the key aspects in the regulatory design of the SEZ as

found in the SEZ Act. These aspects include: the governance and

ownership structure of the SEZs; the incentives offered to investors; the

establishment of one-stop shops and issues of infrastructure develop-

ment.

Keywords: special economic zones, industrial development zones, one-stop

shops, Special Economic Zones Act, Free Trade Zones and foreign direct

investment

* LLB(WSU) LLM(UP).

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229 https://doi.org/10.47348/SAMLJ/v34/i2a4

(2022) 34 SA Merc LJ 229

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I INTRODUCTION

Many countries across the globe have utilised special economic zones

(SEZs) as a significant part of their overall economic growth strategies in

order to stimulate economic transformation and enhance their indus-

trial competitiveness more than would be possible without the use of

such mechanisms.

1

According to the United Nations’ Conference on

Trade and Development (UNCTAD) report published in 2019, almost

5 400 SEZs have been established in 146 countries around the world and

more than 500 new SEZs are in the pipeline.

2

A few years ago, the South

African Government adopted a SEZ policy as one of the country’s most

critical instruments to be used to advance the government’s strategic

objectives of industrialisation, regional development and job creation.

3

The South African SEZ policy was introduced in 2012 in order to

provide a clear policy framework with respect to the development,

operation and management of the country’s SEZs, including addressing

the challenges of the previous industrial development zones (IDZs)

programme.

4

The country views the SEZs as a key conduit for foreign

direct investment (FDI), advancement of technology, promotion of

trade, and employment generation.

5

To achieve its policy objectives, the

country enacted a SEZ Act (SEZ Act 2014)

6

to provide a legal and

institutional framework for the development and operation of SEZs in

South Africa. The legislation of economic policy usually creates a level of

certainty, confidence and transparency in the country’s commitment to

the SEZ programme.

7

The current SEZ programme is the second attempt under the

democratic dispensation that the government has adopted for the

purpose of promoting exports and accelerating the country’s industrial

agenda. The country’s IDZs, the precursors to SEZs, which were

established at Coega, East London, Richards Bay, and OR Tambo

International Airport, outside Johannesburg, were all considered unsuc-

1

Tralac, ‘Special Economic Zones and Regional Integration in Africa’, available at

https://www.tralac.org/files/2013/07/S13WP102013-Woolfrey-Special-economic-zones-

regional-integration-in-Africa-20130710-fin.pdf, accessed on 7 June 2021.

2

United Nations Conference on Trade and Development (UNCTAD) ‘Chapter IV Special

Economic Zones’, available at https://unctad.org/system/files/official-document/WIR2019_

CH4.pdf, accessed on 6 June 2021.

3

Department of Trade and Industry (DTI) ‘Policy on the Development of Special

Economic Zones in South Africa, Republic of South Africa’, available at https://www.gov.za/

sites/default/files/gcis_document/201409/34968gen45.pdf, accessed on 28 June 2021.

4

Department of Trade and Industry para 1.3.

5

Department of Trade and Industry para 1.1.

6

Special Economic Zones Act 16 of 2014.

7

Laryea, Ndonga & Nyamori, ‘Kenya’s Experience with SEZs: Legal and Policy Impera-

tives’ (2020)28(2) African Journal of International and Comparative Law 171 at 171.

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cessful in achieving their objectives. The previous IDZs did not generate

economic growth as had been expected.

8

Therefore, the current SEZs

programme is a response to the disappointing record of the failed IDZs

and is intended to address its design deficiencies. So, would the new SEZ

programme succeed if the earlier IDZs failed? Since the IDZ programme

is considered to have failed to generate the levels of anticipated

economic development,

9

it is important to assess whether the new SEZ

programme will be able to fulfil its intended objectives. Therefore, the

purpose of this article is to provide an insightful analysis of the South

African SEZ programme from a legal and policy perspective and also to

proffer some reforms in areas that may be pertinent for the success of the

SEZ programme. It traces South Africa’s experience with the IDZs and

related industrial policies by assessing how the country has fared so far,

looking at its transition from the IDZs to the SEZs and also analyses the

potential challenges it is likely to face in the future. It adopts a

comparative method of analysis by examining key issues confronting

SEZs in South Africa, India and China. In particular, the article

compares only the key aspects in the regulatory design of the SEZ as

found in the SEZ Act. These aspects include: the governance and

ownership structure of the SEZs; the incentives offered to investors; the

establishment of one-stop shops, and infrastructure development.

A comparative analysis is useful in order to better understand South

Africa’s approach to the design and features of the SEZs and to

determine whether the new SEZ programme in the country is interna-

tionally competitive and on par with similar programmes especially

those in India and China. These two countries were chosen for compara-

tive purposes because they have had a successful record in

operationalising their SEZ programmes and their SEZs have contributed

to both countries’ economic growth and development.

10

SEZs are

accredited for China’s economic miracle. China, India and South Africa

are all developing economies and are a part of the BRICS (Brazil, Russia,

India, China and South Africa) member countries. Actually, South

Africa’s membership to BRICS was one of the motivating factors for the

adoption of the new SEZ programme. China, over the past few decades,

8

Nel & Rogerson, ‘Special economic zones in South Africa: Reflections from international

debates’ (2013) 24(2) Urban Forum 205 at 209.

9

Farole, ‘Special Economic Zones in Africa: Comparing Performance and Learning from

Global Experience, the World Bank’, available at https://openknowledge.worldbank.org/

handle/10986/2268, accessed on 28 June 2021.

10

Zeng, ‘China’s Special Economic Zones and Industrial Clusters: Success and Challenges’

available at https://blogs.worldbank.org/developmenttalk/china-s-special-economic-zones-

and-industrial-clusters-success-and-challenges, accessed on 28 June 2021.

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ASSESSING THE LEGAL AND REGULATORY FRAMEWORK 231

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