INDUSTRIAL ECONOMIC HUBS & SPECIAL ECONOMIC ZONES 30 April 2013

1. INDUSTRIAL ECONOMIC HUBS & SPECIAL ECONOMIC ZONES30 April 2013 PRESENTATION TO THE PROVINCIAL LED FORUM

2. Table Contents • Introduction • Policy Alignment and catalytic Interventions • Special Economic Zones (SEZs) • Types of SEZs • Foundation for SEZ success • Export opportunities • KZN Approach • Comparative Advantage • Industrial Economic Hubs • SEZ Selection Criteria • Richards Bay IDZ SEZ • Dube Trade Port SEZ • Progress Report • Conclusion

3. Introduction • The current global economic trends dictate that it cannot be business as usual • The developed nations economies are under siege whilst the developing nations economies are growing steadily • Challenges of unemployment, inequalities and poverty remain a challenge for developing nations • The emergence of developmental state and the “BRICS fever” • Provincial space economy and need for alignment - Vision 2013 (re-industrialisation and decentralisation) • Our approach needs to be innovative and creative – thinking outside the box • The approach to growing the KZN economy firmly revolves around infrastructure development; enterprise support; investment & trade linkages; support to key priority sectors (manufacturing, agriculture, tourism, ICT and green economy).

4. Policy Alignment and Catalytic Interventions • New Growth Path (NGP) • National Development Plan (NDP) • SEZs Bill • IPAP2 Policy Targets • Unemployment • Poverty • Inequality • Sustainable Economic Growth • Provincial Growth and Development • Provincial Spatial Economic Development Strategy (PSEDS) • Industrial Development Strategy (PSEDS) • Maritime Strategy • Export Strategy • Investment Strategy • KZN Tourism Master Plan • Rural Development Strategy • Human Settlement Strategy • Green Economy • Airport • Freight and Logistics • Catalytic Interventions • Infrastructure Development • Special Economic Zones • Corridor Development • Small Town Rehabilitation • Industrial Economic Hubs • Aerotropolis • Enterprise Development • Green Economy • Maritime Industry Development Robust Implementation Critical

5. Special Economic Zone (SEZs) • SEZs are loosely defined as “Designated areas in countries that possess special economic regulations that are different from other areas in the same country. Moreover, these regulations tend to contain measures that are conducive to foreign direct investment. Conducting business in a SEZ usually means that a company will receive tax incentives and the opportunity to pay lower tariffs” • SEZs are a tool for government intervention into the economy • Most critical instruments to advance government’s strategic objectives of industrialization, regional development and job creation • SEZs can help improve attractiveness of SA as a destination for foreign direct investment • SEZs are introduced to improve on the concept of IDZs which have enjoyed mixed successes since introduced in 2000 • An IDZ is a purpose-built industrial estate linked to an international airport or seaport which is tailored for the manufacturing and storage of goods

6. Special Economic Zone (SEZs) • IDZ’s are export oriented & only found near airports & seaports. SEZs cover wide range of sectors that could be developed anywhere in the country • SEZs will help stimulate industrial decentralization from the province’s main urban centres of Durban, PMB, Richards bay • DTI Minister indicated that IDZs will not be scrapped but will continue to exists as SEZs under the new Bill • SEZs scope will be beyond export industries to include a focus on research, innovation and regional development in areas such as science parks, industrial parks and sector development zones • IDZs tended to favour only few regions and their financing arrangement made it impossible to do long term planning • To remedy this, the new Bill provides for the setting up of a SEZ fund, which is not only intended for feasibility studies, but for incentives as well

7. Special Economic Zone Types • There are different categories of SEZ • Sometimes countries use different names for the same concept, but the strategic intention is more important than the name used • Examples of SEZs • Industrial Development Zones • Free Ports • Industrial Parks/Estates • Science and Technology Parks • Sector Development Zones • Spatial Development Corridors

8. Foundation for SEZs success • Zones will be designed such that they include key support platforms such as: • Education and training facilities • Research, development and technology facilities (innovation) • Incubation facilities to support business linkages and integration • Trade facilities • Customs controlled areas • SEZs requires skills that are beyond the public sector hence partnerships with tertiary institutions and private sector investors is key • It is highly unlikely that a relaxation of labour laws will be considered under SEZ initiative which is a norm in most countries

9. Export opportunities • The importance of the global production network and value chains in international trade is unquestionable • The role of SEZs in stimulating export growth through various incentives is important • Overall SEZs are estimated to account for more than US$200 billionin global exports and employ directly at least 40 million workers • In KZN, we view SEZs as critical not only in export growth but job creation, foreign exchange earnings, industrial decentralization, access to foreign manufacturing technology and know how • SEZs provides opportunities to exporters located throughout the province – you don’t necessarily have to be next to the sea and airport to benefit • We are not creating enclaves that are separated from the national markets which will effectively undermine creation of effective domestic linkages – at the same time we will guard against cannibalization of businesses outside the SEZs or hubs

10. KZN Approach • The MEC identified 11industrial district SEZs and submitted these to the DTI for their review and support • The MINMEC and DTI advised that too many SEZ in the country may not be sustainable and indicated that only a maximum of two per province may be established • Furthermore, MINMEC encouraged provinces to adopt a provincial helicopter view in identifying SEZs and provided the following guidelines to provinces • Aligned with the national infrastructural programme; • Should not be confined to a political geographical space such as a district municipality; • Should not compete with each other in the country; • Multi-site SEZs will be considered; and • Focus on secondary sectors not primary and tertiary sectors such as agriculture, mining and tourism.

11. KZN Approach…….cont • To address MINMEC and DTI concerns, the workgroup convened a province wide multi- stakeholder workshop (including district municipalities & eThekwini Metro, DTI, the Provincial Planning Commission, business chambers, private consultants, tertiary institutions, Provincial SEZ workgroup members and interested individuals) to identify provincial SEZs in line with the provided criteria. • The stakeholder meeting resolved that whilst the districts industrial hubs are critical to address the province’s key developmental aspirations such as job creation and economic growth, their large extent do not conform to the criteria set out by the DTI. However, the committee firmly believes that the concept of regional industrial hubs remain critical to the overall economic development in the province. • These hubs will act as a feeder or part of the multi-site hub of the identified provincial SEZs.

12. KZN Approach……..cont • In identifying possible Special Economic Zones for KwaZulu-Natal, two principles have greatly informed our approach: • Principle 1: SEZs should, as far as possible, not be directly competitive with each other (in order to avoid a race to the bottom) • Principle 2: SEZs should be used as a tool to enhance spatial equity in the province • In regard to Principle 2 it was decided to be intentional about tackling spatial equity, by identifying the industrial (SEZ-related) potential of all 11 districts in KZN. • However, in order to stay accordance with Principle 1, the implication is that SEZ-related opportunities in each district should be identified around that district’s unique comparative advantages.

13. Comparative Advantage • The theory of comparative advantage is an international trade theory but in its simplest form can be applied in a spatial development context. • Simply put, the theory of comparative advantage would posit that each district has at least one area of economic activity which, relative to other districts it has an advantage in by having a lower opportunity cost of production. • Efficient fiscal spending would then entail directing resources to each district’s comparative advantage focus area. • The process of identifying comparative advantages became a useful tool for identifying potential SEZs and supporting industrial hubs.

14. Comparative Advantage

15. Industrial Hubs

16. Industrial Hubs

17. Industrial Hubs

18. Industrial Hubs

19. SEZ Selection Criteria • In identifying potential SEZs for the province from the comparative advantages and industrial hubs of the districts, it was necessary to establish a set of guiding criteria. • Is it aligned with National and Provincial Policies? • Does it promote spatial equity and reduce geographical inequalities? • Is it in a labour intensive sector? • Is it accommodated in the infrastructural planning of the province? • Is it in a sector in which the province has a comparative advantage? • Will it be globally competitive?

20. KZN implementation Model of SEZs and Feeder District Industrial Hubs

21. Proposed SEZs and Feeder Industrial Hub

22. Richards Bay IDZ SEZ • Location • Located at the current Richards Bay IDZ, but including new parcels of land in the nearby Nseleni Area on the inland side of the N2 • Rationale: • Sunk investment in IDZ • 50-year master plan • Location near the largest and deepest Port in the country • High concentration of existing heavy manufacturing industries • Focus industries: • Metal processing; machinery manufacturing; minerals beneficiation • Feeder Industrial Hubs and Backward Linkages • Newcastle: Steel Manufacturing • Vryheid; Dundee; Newcastle: Mineral extraction and beneficiation

23. Dube Trade Port SEZ • Location • Located in and around the Dube Trade Port in the north of eThekwini and the south of iLembe. • Rationale: • Access to an international airport providing businessmen with connectivity to the rest of the country and the world. • The ability of Dube Trade Port to facilitate the export of perishable agricultural products. • The concentration of Food and Beverage processing in eThekwini and in the neighbouring iLembe district. • The ‘Green’ momentum generated by the hosting of COP17 • Focus industries: • Agro-processing and green technology development. • Feeder Industrial Hubs and Backward Linkages • Hibiscus Coast: Agro-products • Isithebe Industrial Estate: Biofuel and packaging • Dundee and Zululand: Meat and hide processing • Mkhuze: Agricultural mechanization

24. Functional Architecture Policy Framework Specialised Technical Teams (districts) Industrial Economic Hubs (2 DTI Type SEZs) ROAD MAP District Co-ordinating Forums (Govt, business, Unions and community )

25. Industrial Economic Hubs Progress Report

26. IEH PROJECT MANAGERS

27. THE ADVISORY TEAM

28. THE FEASIBILITY STUDIES

29. Roles and Responsibilities Project Sponsor and Incubator The HOD is the Chief Incubator and Sponsor for the IEH initiative. The budget for the project is currently within the Office of the HOD. Project Manager Sihle Mkhize is the acting project manager for the IEH initiative. The full-time project manager is currently being procured through the normal SCM processes. Project Administrator Ms Fikile Nxumalo is the Project Administrator for the IEH initiative.

30. Roles and Responsibilities • Advisory Team • The advisory team’s prime role is to advise the HOD (and the department) on the establishment, operationalization and management of the Industrial Economics Hubs in the province. This advice will entail inter alia the following: • Providing a standard common framework to guide the establishment and roll-out of the hubs • Assessing the deliverables of the district project specialist teams to assess if they are in line with the projects key goals and above-mentioned framework. For example, is the finance model in the feasibility study sound and completed according to acceptable standards, is the policy and legislative framework analysis accurate, is the market analysis sound? • Advise on the value chain linkages of the Industrial Economics hubs and the SEZs • Provision of on-going advice and guidance to the HOD/department

31. Roles and Responsibilities • Specialist Project Teams • The multi-disciplinary project specialist team’s role and responsibilities are to support the establishment and operationalization of the IEH. The key objectives of the specialist project teams are to: • Develop a comprehensive Strategy and Framework for each industrial with a detailed institutional and implementation plan • Undertake a feasibility study and business plan for each industrial hub which will include: • A detailed industrial capacity assessment for each hub which will include: the comparative advantage of the area, the size and capacity of each industrial zone, indicate the industrial and business mix for each zone, condition of existing infrastructure, linkages with other zones within and outside the province • Identify and establish value chain linkages between industrial hubs and the designated Special Economic Zones for the province

32. Roles and Responsibilities • Specialist Project Teams (continued) • Provide cutting edge research and development expertise for each industrial hub • Facilitate and manage the actual operationalization of each industrial hub which will include: • Identification and securing of industrial hub anchor investors and • operators • Identifying, leveraging and securing of funding for industrial hubs Packaging of incentive schemes for industrial hub locators Securing of sites (land and buildings) • Provide necessary infrastructure including services (water, electricity, • roads) • Effective planning, management, monitoring and evaluation for each • industrial hub.

33. CONCLUSION • The IEH is to launched in all districts at by May 2013; • The IEH is a three year project – (Feasibility - 2013 – Operationalization); • The IEH is not a silver bullet to solve all our problems – other key initiatives to continue • KZN opportunities to sustain higher growth path still remains – (manufacturing, tourism, agriculture- agro, transport – logistics, emerging industries) • Need to harmonize and synergize our various initiatives and programmes

34. THE END!!!THANK YOU!! Contact Details: Mr Sihle Mkhize General Manager: Economic Planning Department of Economic Development & Tourism MkhizeSi@kznded.gov.za 033-2642607

35. THE END!!!