Govt to revive Special Economic Zones

Published: 18 December 2013

GOVERNMENT has approved the re-establishment of Special Economic Zones to create a vibrant, self-sustaining and robust manufacturing industry with capacity to produce goods and services for both, the domestic and export markets.

According to a concept paper done by Ministry of Finance and Economic Development on the re-establishment of the SEZs, the ministry said "Cabinet approval of the re-establishment of SEZs is a great indication of Government's initial commitment".

The SEZ follow a similar concept to the Export Processing Zones, established in 1987 through an Act of Parliament.

The EPZ programme was managed and administered by the Export Processing Zones Authority. However, the formation of the Zimbabwe Investment Authority through the ZIA Act repealed the EPZA Act, which was the legal instrument governing the operations of EPZA.

The move meant that, administratively, the programme could not continue to run.

By 2004, projects under EPZ created over 32 000 jobs and $172 million worth of investments. The EPZ incentives, which were used under the four instruments of the Finance Act were the Income Tax Act, Customs and Excise Act, Capital Gains Act and Value Added Act.

Meetings had been going on among Zimra, Finance Ministry, Economic Planning and Investment Promotion Ministry and ZIA with the objective of bringing back an export incentive scheme. The result of these meetings was that either the ZIA Act or the four instruments of the Finance Act be amended to make the EPZ incentives accessible.

Zimbabwe is facing one of its worst de-industrialisation crises as many companies are closing down due to economic challenges. The export-oriented sectors, particularly manufacturing, have not realised meaningful investment over the past three years, according to the Confederation of Zimbabwe Industries.

Zimbabwe's export base is narrowing, with the country literally trading in deficit with most of its trading partners.

Zimbabwe remains unattractive to international financing, largely due to external debt estimated at about $11 billion.

This has resulted in the un- availability of sustainable long- term funding. The available short-term loans are too expensive to assist industry. Zimbabwe's once vibrant manufacturing base has shrunk, reducing the country into a nation of traders.

The net effect of this has been a debilitating liquidity crunch which has worsened the operating environment for companies in Zimbabwe.

The liquidity crunch, which started towards the end of 2011, has gradually worsened in 2013 resulting in several firms collapsing and many more struggling to meet their costs.

The July 2013 National Social Security Authority Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare only closed down, rendering more than 8 000 unemployed. As such, the Government is in the process of creating an environment for macro-economic sustainability and restoring the economy's capacity to produce goods and services competitively.

Such efforts include initiatives like the National Trade Policy, which seeks to focus productive sectors of the economy towards export orientation and international competitiveness while ensuring that Zimbabwean firms and households enjoy continuous access to a wide range of high quality goods and services.

In addition, the recently launched Zimbabwe Agenda for Sustainable Socio-Economic Transformation seeks to restore the manufacturing sector's previous significant contribution to GDP while seeking to improve production and export of goods and services through value addition and sees this thrust as anchored in establishment of SEZs.

"To realise the above, Zimbabwe needs to encourage exports and foreign exchange earnings at the same time addressing the massive unemployment rate, broaden the economic base and attract development and new technologies," reads excerpts from the concept paper.

"This can be achieved through an industrial policy legal instrument that encourages export-oriented manufacturing sectors in the country in an environment that offers the ideal business climate for manufacturing companies wishing to export to new markets from a restriction-free environment.

To address the above challenges, the Ministry of Finance and Economic Development seeks to re-introduce the Export Processing Zones under Special Economic Zones."

The concept paper notes that the previous legislation on EPZ needs to be reviewed so that a legal and regulatory framework based on international best practices is put in place.

There should be a legal framework outlining private zone designation criteria, incentives and rights of developers and operators as well as for public, private partnership zones, outlining rights, obligations and commitments of both parties with respect to all aspects of zone development such as financing, regulation and promotion.

For SEZ to achieve the desired results, there is need for strong leadership and high levels of political oversight.

The paper notes SEZs should offer tailored solutions. Citing China's experience, SEZ should target particular industries that offer solutions to the challenges faced by those industries.

International best practice for successful SEZs models involves strong linkages and co-operation between the public and private sectors and as such Government should formulate policy to encourage PPPs, which are very vital for the growth of the economy. There is need to develop proper regulations to govern the SEZs before setting them up.

"This helps to define the rules of operation and brings clarity to potential investors on the opportunities, incentives and expectations upon them," according to the concept paper.

"The SEZs should also ultimately be globally competitive. Studies have shown that it is not enough to be better than the host economy; few investment decisions are made on the basis of fiscal incentives alone.

"Investors consider location, market access and logistics, labour market prices, and favourable regulatory framework among others. As recommended from the COMESA Business Forum; a holistic approach is needed where the reforms will need to be introduced that will make the country more attractive to investors, which is good for the economy."
- herald