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Development zones are wrong vehicle

Posted On Friday, 09 February 2001 03:01 Published by
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THE new industrial development zone programme that was published in the Government Gazette will not assist SA to meet the challenge of globalisation.

THE new industrial development zone programme that was published in the Government Gazette will not assist SA to meet the challenge of globalisation.

The legislation, published as a schedule to the Manufacturing Development Act No 187 of 1993, is only a slightly amended version of the draft regulations published for comment in October 1999, despite the many comments and suggestions that were submitted by the public and interested parties.

It is almost certain the new programme will not assist SA in meeting the challenges of globalisation because development zones are not suitable vehicles for attracting foreign investment and encouraging international competitiveness.

It has been established in various World Bank studies, and recently confirmed by the International Labour Organisation, that the only successful way to attract foreign investors and entrepreneurs is by offering generous incentives and privileges.

By targeting incentives at specific categories of investment, countries are encouraging integrated manufacturing using domestic and foreign investment in a variety of formats of tax-free trade zones, which all have in common the crucial element of providing tax incentives to attract foreign direct investment for export production.

Tax-free trade zones not only concentrate infrastructure development in particular areas, thus enabling the country to adopt a gradual and slower pace of adjustment for the economy at large, but they encourage industrial and economic development and employment and lift the skills levels.

The new legislation falls short of these requirements. A potential investor will eventually find regulation 36 on import and export incentives only after having worked his way through endless administrative provisions and discouraging formal requirements.

However, any expectations arising from the term incentives will be soon disappointed, as regulation 36 makes it clear that the only incentives offered are exemptions from customs duties, levies, fees or similar financial obligations, in respect of imports to and exports from an industrial development zone.

These so-called incentives do not compare with the very generous tax holidays offered by countries who are actually competing with each other in their attempts to attract investors and entrepreneurs. Examples in the African context are Ghana, Namibia and Mauritius, the latter having evolved to the most successful export-processingzone in the world.

One would have hoped for a dedicated, committed and openminded approach inspired by those examples.

The new legislation should have been intended to attract foreign investment and provide employment, especially in the light of the rising unemployment figures and a 43% decrease of foreign direct investment last year alone.

Schulze is the chief researcher at the Institute of Foreign and Comparative Law at the University of SA.

Publisher: Business Day
Source: Christian Schulze
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