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IDZs’ Readiness for SEZ Implementation Joint Presentation to the Select Committee on Trade and International Relations and the Portfolio Committee on Trade and Industry 23 May 2012. 1 1. the dti DELEGATION. 2 2. Presentation Outline. Purpose Background IDZs established since 2000

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  1. IDZs’ Readiness for SEZ Implementation Joint Presentation to the Select Committee on Trade and International Relations and the Portfolio Committee on Trade and Industry 23 May 2012 11

  2. the dti DELEGATION 22

  3. Presentation Outline • Purpose • Background • IDZs established since 2000 • Expenditure Trend • Government’s share of IDZ Expenditure • Total Transfer Payments to IDZ Operators • Expenditure vs Revenue • Transfer Payments by the dti • Growth Rate of the dti’s allocation to IDZs • Capital and Operational Expenditure Comparatives • The Zones and Investment Performance • Investors on Site • Relationship between Expenditure and Job Creation • Challenges with Existing IDZs • Measures to Ensure Readiness of IDZs and their Integration into the New SEZ Programme 33

  4. Purpose • To present the performance of the IDZs since its inception to date, • To present the measures that the dti has taken to ensure the IDZs readiness for integration into the new SEZ Programme. 44

  5. Background • It is more than 10 years now since the dti established the IDZ programme with the aim to: • attract Foreign Direct Investments, • Increase exports, • and contribute to employment creation in the country. • While the IDZ programme continues to make progress, the dti feels the IDZs could have achieved more in terms of the programme’s strategic objectives – a key reason for policy review. 55

  6. IDZs established since 2000 Designated & Functional IDZ Designated, but not yet functional IDZ Planned IDZ, but not yet designated 66

  7. Expenditure Trend (2002-2012) • Between 2002/03 and 2011/ 2012, the government has expended a total of R 7,6 billion to the three functioning IDZs, • of which R5,4 billion(76%) comes from the dti , • and R 1,7 billion from the host provincial governments. • During this period, the IDZs have attracted a total of 44 investors, investing just over R12.3 billion, and, • creating direct and indirect job opportunities in construction and through investors of 38794 77

  8. Govt share of IDZ Expenditure 88

  9. Total Transfer Payments to IDZ Operators 99

  10. Expenditure vs Revenue (2002-2012) • The government spent more than R7, 6 billion to the three functioning IDZs between 2002 and 2011, • of which a total of R5, 4 billion (72%) comes from the dti, • and R2,1 billion (28%) from the host provincial governments. • Over these years there has also been a steady increase in the IDZs own revenue generation: • with Coega increasing its own revenue on annual average at (20,1%) contributing 8,6% to its total budget, • ELIDZ at (80,1%) contributing 5,7% to its total budget , • and RBIDZ at (-56,8%) contributing 1,9 % to its total budget. 1010

  11. Transfer Payments by the dti (2002 – 2012) Table 2: the dti funding transferred to IDZs between 2002/03 and 2011/12 1111

  12. Growth rate of the dti funding expended to IDZs Operators • It is important to note that the IDZs budget allocation is based on the MTEF budget allocation system. • This government funding cycle (based on the 3 year revolving planning system) has proved to be inflexible and unresponsive to the rapid response by IDZ Operators to investor needs. • The allocations are characterised by inconsistencies and inflexibilities of the current IDZ budget model as the IDZ budget allocation is largely dependent on the allocation over MTEF period which do not cater for the dynamic investor needs that might arises during this period. 1212

  13. Growth rate of the dti’s allocation to the IDZs: 2002-2012 1313

  14. Capital and Operating Expenditure Comparatives • Figure analyses the IDZs capital and operating expenditure as a percentage of total budget of the IDZ Operator for 2011/12 financial year. • It reveals that Coega spent 69% of its budget on OPEX & 31% on CAPEX, • whilst ELIDZ spent 38% on OPEX & 62% on CAPEX • and RBIDZ spent 12% on OPEX % 88% on CAPEX • The Coega situation is anomaly and needs closer analysis. 1414

  15. Capital and Operating Expenditure Comparatives 1515

  16. The Zones and Investment performance 1616

  17. East London DIZ (ELIDZ) 1717

  18. Investors on site 2002-2012 1818

  19. ELIDZ Sectoral diversification 1919

  20. Coega CDC 2020

  21. Coega Sectoral Diversification (2002/03-2011/12) 2121

  22. Relationship between Expenditure and Employment creation (2010/11-2011/12) • Figure depicts the relationship between expenditure and employment creation between 2010/11 and 2011/12 financial years. • It shows that in 2010/11 ELIDZ created more employment opportunities as a proportion of its budget as compared to Coega and RBIDZ. • Similarly in 2011/12 ELIDZ managed to create new jobs, albeit very low whilst Coega and RBIDZ did not create any new permanent jobs. • In terms of L/K ratio – The capital injected into the IDZs did not leverage significant employment in 2011/12 financial year 2222

  23. Relationship between Expenditure and Job creation (2010/11-2011/12) 2323

  24. RBIDZ 2424

  25. Challenges with the Existing IDZs 2525

  26. Challenges with existing IDZs • The lack of IDZ specific incentives (with exception of Customs Controlled Areas that are yet to be rolled out and higher 12i Tax Allowance) made the IDZs less attractive • Ad Hoc Funding arrangements: The funding arrangements for IDZs made them rely on a single source of funding that is on-budget funding through the National Treasury. The current model does not provide flexibility to cover the cost of new unexpected projects establishing on the zones. • Lack of targeted investment promotion: The Marketing of IDZ’s was insufficient without clear roles designated for the national marketing agencies and the IDZ’s themselves, which resulted in poor performance in attracting foreign direct investments 2626

  27. Challenges with existing IDZs • Poor stakeholder coordination: There has been a lack of coordination of key national, provincial and local government to help provide the ecosystem in which the IDZs could thrive. • Ad-hoc planning arrangements: The current regulatory framework is not sufficient to guide the long-term planning in IDZs to coordinate and harmonise their plans and facilitate integration into key national, provincial and regional strategies.. • Weak governance arrangements: The Manufacturing Development Act 1993 (Act no. 187 of 1993) does not provide sufficient guidance with regard to governance arrangements of an IDZ. The result is that there is often insufficient or timely oversight of the strategic plans and operations of IDZs. 2727

  28. Measures to Ensure Readiness of IDZs And their Integration into the new SEZ programme 2828

  29. Remedies • New SEZ Legislative and Policy Framework: On the finalisation stage; • New funding Model: the SEZ Fund and other financing instruments • The SEZ Incentives: a suite of incentives that will make the IDZs more attractive; • Monitoring and Evaluation System: M&E capacity and system are being developed; • Change in the IDZ Business Model: the dti is coming up with measures to assist IDZ operators to achieve the IDZ strategic objectives; 2929

  30. Remedies • One stop shop model: where bureaucratic red tape will be reduced. the dti is in consultations with various departments and agencies to agree on the roles and responsibilities and finalised SLAs and MOAs; • Expert advise: will invite experts to assist where necessary to assist IDZs where weaknesses have been identified; and • SEZ Marketing Strategy: is being developed and a vehicle on marketing IDZs and other SEZs will be recommended 3030

  31. End Thank you 3131

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