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Lessons for South Africa from international evidence and local experience

Lessons for South Africa from international evidence and local experience. HEADLINES. South Africa has to deal with mass unemployment Current policies favour capital- and skill-intensive industry SEZs have helped transform economies around the world

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Lessons for South Africa from international evidence and local experience

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  1. Lessons for South Africa from international evidence and local experience

  2. HEADLINES • South Africa has to deal with mass unemployment • Current policies favour capital- and skill-intensive industry • SEZs have helped transform economies around the world • The world economy is seeing a rebalancing of global supply chains as costs rise in China • SA should establish two large SEZs focussed on low-skill, labour-intensive industries • This should be a national priority

  3. SA’S MOST CRITICAL CHALLENGE (1) • SA’s employment rate is 40%, compared to global norms of around 60%

  4. SA’S MOST CRITICAL CHALLENGE (2) • We’re not creating jobs fast enough • Depending on your assumptions about the rate of growth of the population, we may not get to 60% employment in a generation even with 7% growth per year. • We need to focus on increasing the labour-intensity of growth

  5. INTERNATIONAL EVIDENCE • There are some 3,000 SEZs in 135 countries. • Significant economic impact • In 2008 they accounted for more than 68 million direct jobs and $500 billion of trade related value-add • In 2004 they attracted 32% of all manufacturing FDI and were the source of 41% of the world’s manufacturing exports • Many SEZs fail • SA must learn the lessons from international success

  6. INTERNATIONAL BEST PRACTICE (1) • Special economic zones must be special: need to offer investors better value proposition • Global competitiveness matters for FDI and exports • SEZs must offer tailored solutions to problems faced by businesses trying to compete

  7. IS THIS A GOOD IDEA? (1) INTERNATIONAL BEST PRACTICE (2) • For labour-intensive firms, the costs and flexibility of employment matter • SEZs are badly suited as instruments for uplifting poor regions • SEZs don’t work unless the whole of government gets behind them

  8. SOUTH AFRICA’S INDUSTRIAL DEVELOPMENT ZONES “When compared with programmes in countries such as China, Korea, India, Malaysia and others, the performance of South Africa’s IDZ programme is fundamentally modest and falls short of the expectations of all stakeholders, and requires revamping.” Policy on the development of special economic zones in SA, DTI 2012

  9. NEW OPPORTUNITIES SHOULD BE SEIZED • Costs in Asia have risen, and there is increasing evidence that supply-chains are responding to that • Justin Lin, former chief economist at the World Bank: a significant proportion of China’s 85 million light industrial jobs may move to other countries in the next generation • SA should compete for some of these jobs • SEZs could be used to create a platform for this

  10. SEZS AND THE CHALLENGE OF UNEMPLOYMENT IN SOUTH AFRICA • South Africa needs jobs for the people we have now • The country has far too few labour-intensive firms that use a lot of unskilled labour • The top priority for SA’s SEZ programme should be to establish zones in which labour-intensive companies can compete globally • Use the SEZs as testing grounds for new policy options

  11. TEN AREAS FOR POLICY REFORM FOR SUCCESSFUL SEZs Ensure that production costs (including the costs of labour) are as low as possible Create more flexible employment relationships Provide efficient access to international markets Ensure easy access to skills (including foreign skills) Offer credible guarantees that policies will be sustained Make the SEZ programme a presidential priority and ensure the DTI is supported by other departments Allow SEZs to be run commercially Promote the zones effectively Reduce red-tape by establishing genuine one-stop shops Orient local education & training institutions to provide the skills needed in SEZs

  12. CONCLUDING REMARKS • Current economic policy is skewed and favours skill- and capital-intensive industry • South Africa’s unemployed are poorly educated and have little work experience • The international evidence is clear and SA’s IDZ experience instructive in what NOT to do • A bold paradigm shift is required

  13. “SEZs are a major opportunity for SA to do things differently. Costs in Asia are rising with many firms looking to relocate. SA should seize this new opportunity. This will require bold leadership and engagement with some difficult choices that must be made. The alternative is to waste resources and energy yet again on a policy that fails.” CDE Report 2012

  14. This project was funded by Blue IQ, the investment arm of the Gauteng Provincial Government, and Business Leadership South Africa. The funders do not necessarily agree with the contents of the report.

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