Why don’t investors flock to our special zones?

Source: Sunday Independent, 27/05/2018

South Africa has spent 10 years setting up our special economic zones
(SEZs) to attract investors, but now that the parks are ready,
investors are not coming.
We need to urgently address why this is the case if we want to court
investment to facilitate job creation, which is the president’s top
priority. It is not good enough to have merely built the nests, now
we need to attract the birds.
It was a wonderful idea for President Cyril Ramaphosa to appoint four
special investment envoys to fan out across the globe in an
investment drive to attract R1.2 trillion in investment over the next
five years.
But if we don’t sort out the reasons for why investors are not
finding our SEZs attractive, it may not produce the results the
president is hoping for.
The government is gearing up for two major investment summits, the
success of which is critical for our economy. We need to take a hard
look at the fact that we have as many as 10 SEZs, and while there are
investors, there are not enough.
There are hardly even enough investors to sustain four SEZs, which
means economies of scale are not there.
So what exactly are these challenges? The primary issue is safety and
security, without which we cannot expect to attract either investors
or tourists, which are key to job creation.
The reality is that the murder rate in this country is the primary
deterrent to investment, and potential investors are now even saying
they would prefer to go to Kenya than South Africa, which is really a
concern.
The number of Chinese tourists to South Africa peaked in 2013/14 at
150000, but has declined to 100000 since then owing to security
concerns.
A Singapore business delegation was robbed as they travelled from the
airport to the hotel. What type of message does that send? The media
also needs to be more responsible and send out positive messages as
opposed to a constant stream of negativity, which feeds into fear-
mongering overseas.
The second major issue deterring investment is the lack of incentive
policy written into law. Any investor will tell you that incentives
are everything, but in South Africa there is no law approved by
Parliament and the president that ensures profits to investors for
the long term. In the South African Economic Zones Act, there is only
one sentence devoted to SEZ policy.
It merely says that the minister may determine policy for SEZs, and
when necessary can review policy.
This means that the policy can change at any time, which doesn’t
instil much confidence in investors.
If we look at Egypt, contained in their investment law are three
pages devoted to investment incentives.
There are incentives to do with significant discounts off investment
costs for labour-intensive projects, small and medium enterprises,
projects on renewable energy, tourism, electricity generation, car
manufacturing, agricultural products and engineering, to name but a
few.
Egypt has been particularly effective at speeding up investment and
industrialisation in their country.
At the end of the day, investors come to make profits and an
incentive policy is key to attract them.
The third major area of concern on the part of investors is
government services. The Department of Trade and Industry has already
made some headway in creating a framework for a one-stop shop like
China has, which is a single place where investors can go and deal
with Home Affairs, Immigration, police, tax authority, customs, and
electricity. But the procedure in dealing with all the government
services currently takes far too long.
The Chinese embassy is trying to assist by sending 48 South African
government officials to China this year for a workshop on how to make
a one-stop shop operational and efficient.
When Asians look at where to invest, they see South Africa with a
population of 55 million and a growth rate of 1%. Compare that to the
Philippines, with a population of 103 million and a growth rate of
6.9%, and Indonesia, with a population of 261 million and a growth
rate of 5%.
Asian countries are also within the same time zone, and not more than
about a three-hour flight from each other. How will South Africa make
itself attractive to Asian investors?
Being on the southernmost tip of Africa, we are in the best location
straddling two oceans. We have a plethora of mineral resources,
agricultural land and human resources. Now we just have to work out
what real incentives we can offer.
It does not need to be a race to the bottom where we lower our
minimum wage, but perhaps we can be creative with our incentives. We
could, at a minimum, make the red tape in government services less
cumbersome.