SPECIAL ECONOMIC ZONES BILL, 2013

PRESENTATION TO PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY

23 MAY 2013

1

INTRODUCTION

• dti delegation

• Background

• Overview of SEZ Advisory Board and SEZ Framework in Bill

• Issues raised during public submissions and response from dti

2

dti DELEGATION

Representatives from dti

•Mr Tumelo Chipfupa (Deputy Director-General)

•Mr Kaya Ngqaka (Chief Director: Infrastructure Investment Support Unit)

•Mr Dumisani Sombinge (Director: Legal Services)

•Ms Janice Jonathan (Director: SEZ Stakeholder Management)

•Mr Jabulani Sithole (Deputy Director: SEZ Monitoring and Evaluation)

3

BACKGROUND

• Special Economic Zones Bill, 2013 was gazetted for public comment on 1 March 2013

• The Bill was introduced in Parliament on 5 March 2013

• dti presented the Bill and a background to the Bill before Parliament on 26 April 2013

• The Portfolio Committee on Trade and Industry received written submissions from various stakeholders

• Public hearings before the Portfolio Committee took place on 21 and 22 May 2013

• The dti responds to the public comments on the Bill below

4

SEZ ADVISORY BOARD

SEZ Advisory Board

•15 person advisory Board to be appointed by Minister [clause 7(2)]:

• representatives of government (incl. public entities) [clause 7(2)(a) to (i)]

• representatives of organised business, organised labour and civil society with knowledge and experience relevant to SEZs [clause 7(2)(j)]

• three independent persons with knowledge, experience and expertise relevant to SEZ

•Members may be appointed for 2 consecutive terms of 5 years

5

SEZ FRAMEWORK

Applicants for designation [clause 22(1)]

•National government

•Provincial government

•Municipality

•Public entity or a municipal entity

•PPP

•Any of the above jointly

6

SEZ FRAMEWORK

Application for designation

•Applicant applies to Minister for designation [clause 22(1)]

•Applicant must meet stipulated criteria [clause 22(2)]

•Minister, on recommendation of Board:

• may designate an area as an SEZ

• must issue applicant with a licence [clause 22(6)]

•Successful applicant becomes the licensee

7

SEZ FRAMEWORK

Governance and management of SEZs

•Upon designation of an area as an SEZ, the licensee must:

• establish SEZ as an entity [clause 24(1)]

• appoint an SEZ Board to govern and manage business affairs of SEZ [clause 24(2)]

• “Special Economic Zone Board” means the board of directors of an individual special economic zone licensee appointed in terms of section 24(2)

8

SEZ FRAMEWORK

Functions of SEZ Board

•SEZ Board must:

• develop and implement strategic plan for SEZ [clause 25]

• submit business and financial plan for the SEZ to the Minister for approval [clause 26]

• keep full and proper records of its financial affairs [clause 27]

• appoint an operator to develop, operate and manage the SEZ following a procurement process [clause 30]

9

SEZ FRAMEWORK

Taking over administration of SEZ and suspension or withdrawal of designation

•If SEZ fails to comply with prescribed conditions or to perform its functions, Minister may appoint an administrator to take over administration or perform functions of SEZ [clause 28]

•Minister may suspend or withdraw designation of area as an SEZ which does not further government’s industrial development objectives [clause 29(1)]

•Minister may re-designate area as a SEZ where designation has been withdrawn [clause 29(2)]

10

SEZ FRAMEWORK

SEZ operator

•SEZ appoints the operator following a fair and transparent procurement process [clause 30]

•Operator may only develop, operate and manage an SEZ if issued with SEZ operator permit [clause 31(1)]

•Therefore, once appointed by SEZ ito clause 30 to operate SEZ, operator must apply to Minister for operator permit [clause 31(2)]

•Operator must meet stipulated criteria [clause 32]

11

SEZ FRAMEWORK

Businesses located in SEZ

• Any person that intends to conduct business in a SEZ must apply to the Minister to locate the business in the SEZ [clause 37(1)]

•When applying to locate in the SEZ the business must:

• provide information to indicate that it conducts a business or renders a service prescribed by the Minister [clause 37(2)]

• indicate the extent to which the business achieves the purpose of SEZs ito section 4 [clause 37(2)]

•Minister may, on recommendation of Board, approve the location of the business in a SEZ [clause 37(3)]

12

SEZ FRAMEWORK

13

DEFINITIONS (CLAUSE 1)

Issues raised

•The definition of “port of entry” in terms of the Immigration Act, 2002 (CAIA) Page 4 Line 33

•Does the fact that the Bill not define IDZ in clause 23 mean that IDZs are not part of SEZ framework (CAIA) Page 4 Line 18 - Page 11 Line 13

dti’s response

•dti agrees that definition of “port of entry” be amended as agreed to at NEDLAC

•IDZs are part of SEZ framework and defined in clause 1 – Definitions

14

SEZ ADVISORY BOARD (CLAUSE 7)

Issues raised

•Board should not be advisory only but should be empowered to make decisions (ELIDZ) Page 6 Line 4

•Board appears to be executive in nature (CAIA, ELIDZ) Pg 6 Line 4

•Constituency based representation not advisable (CAIA,BUSA) Page 6 Line 16

•Members of Board should consist of more persons from private sector (FMF) Page 6 Line 19

•Board comprises senior members, concern is that Board members will be unable to attend meetings due to their other work commitments (RBIDZ) Page 6 Line 5

15

SEZ ADVISORY BOARD (CLAUSE 7)

dti’s response

•It is important that the Minister is the final decision maker to ensure that the SEZ legislative framework achieves government’s industrial and economic development objectives

•Board is not an executive board

•Bill provides for constituency based representation but requires that members from constituencies have knowledge and experience of SEZs [clause 7(2)(j)] Page 6 Line 16

16

SEZ ADVISORY BOARD (CLAUSE 7)

dti’s response (contd…)

•Board’s functions are regulatory in nature and spread of representation across both public and private sector:

• achieves appropriate balance ito skill set required

• promotes intergovernmental co-operation and co-ordination around SEZs

•Board must comprise senior members to ensure necessary knowledge, experience and expertise relevant for SEZs

•Furthermore, quorum for meetings is 50% plus 1[clause 14(6)] Pg 8 Ln 46; Bill allows for alternate representative [clause 7(7)(a)] Pg 6 Line 37; members can participate via electronic means [clause 14(9)] Page 8 Ln 55

17

PRIVATE SECTOR PARTICIPATION

Issues raised

•It is proposed that the Bill provide for private sector owned SEZs (FMF & BUSA)

dti’s response

•dti submits that the Bill provides for private sector participation in SEZs as follows:

• private sector can apply for designation as SEZ as part of a PPP arrangement (clause 22) Page 10 Line 12

• operators may be appointed from private sector (clause 31) Page 13 Line 17

• businesses located in SEZs (clause 37) Page 15 Line 34

18

PPP ARRANGEMENTS

Issues raised

•Treasury Regulations on PPPs prohibit unsolicited bids (BUSA, RBIDZ & CAIA)

dti’s response

•dti supports Treasury Regulations on PPPs

•Regulations comply with the constitutional obligation to ensure fair, equitable, transparent competitive and cost effective procurement system (section 217 of Constitution)

19

RELATIONSHIP BETWEEN LICENSEE AND SEZ BOARD

Issues raised

•Concern was raised that the Bill confuses an asset (geographic area) and the entity (juristic person) that controls the asset [Clause 24] (RBIDZ) Page 11 Line 25

•It was submitted that it does not make sense why the shareholder of the zone rather than the zone itself is the licensee (RBIDZ)

•Duties that normally fall on legal entity fall on shareholder (RBIDZ) Page 11 Line 51

20

RELATIONSHIP BETWEEN LICENSEE AND SEZ BOARD

dti's response

•Clause 24 provides that upon designation as an SEZ, the licensee must establish an entity Page 11 Line 25•The licensee is the shareholder and must appoint a board to manage the business affairs of the SEZ – the SEZ Board [see Definitions and Clause 24 (2)] Page 11 Line 35•Clauses 25, 26, 27, 28, 30, 31, 32, and 33 refer to the “licensee”

•The dti agrees that these clauses should refer to the SEZ Board and not to the licensee Page 11 Line 51; Page 12 Lines 1, 5, 13, 38, 40, 41, 42, 48; Page 13 Lines 13, 15, 20, 40; Page 14 Line 4, 21

21

DESIGNATION OF SEZs (CLAUSE 22)Issues raised

•Existing sites should be considered for designation (CAIA) Page 10 Line 12

•Minister should publish his intention to designate an SEZ for public comment (CAIA)

•The Bill does not provide for the amendment of designation should the boundaries of the SEZ change (RBIDZ)

22

DESIGNATION OF SEZs (CLAUSE 22)

dti’s response

•Clause 22 does not preclude application for designation by or granting of designation to an existing site, provided it meets the criteria for designation Page 10 Line 12

•The Bill currently does not prohibit the Minister from publishing his intention to designate an SEZ for public comment. dti however agrees that the Bill be amended to enable the Minister to publish his intention

•dti agrees that the Bill must be amended to provide for the amendment of designation should the boundaries of the SEZ change

23

APPOINTMENT OF OPERATOR (CLAUSES 30 – 32)

Issues raised

•Existing IDZs own and operate zones (RBIDZ)

•It is suggested that the Bill prevents this arrangement and it is proposed that an SEZ be allowed to own and operate its zone (RBIDZ)

dti’s response

•An operator must have a permit to operate an SEZ. Provided that the SEZ meets the criteria in clause 32, it is not precluded from applying for operator permit to develop, operate and manage the SEZ Page 13 Line 17

24

SUPPORT MEASURES (CLAUSE 21)

Issues raised•The Bill should provide details of the incentives to be provided (BUSA, CAIA, FMF & CDE) Page 10 Line 2•The Bill should ensure labour flexibility as an incentive to attract investors (RBIDZ, FMF & CDE) dti’s response•Incentives for SEZs must be agreed on between dti and other departments like National Treasury and SARS Page 10 Line 5

•Rules governing incentives, including criteria to qualify for an incentive and the extent of an incentive, are detailed and should not be provided for in the Bill

•dti is currently engaging with National Treasury and SARS on incentives for SEZs

•

25

SUPPORT MEASURES (CLAUSE 21)

dti’s response (contd…)•dti’s international benchmarking review on tax incentives indicate as follows:

Shenzhen SEZ: 15% tax rate

Botswana: 5% tax rate + 10% surcharge in the manufacturing industry

Namibia: 35% standard corporate tax rate and 0% for EPZs

Nigeria: 30% corporate tax rate. Pioneer status - tax holiday max 7yrs

Senegal: 25% corporate tax rate & 15% for agro-processing and tele-services exporting 80% of production

Algeria: 19% standard corporate tax rate

Egypt: 20% standard corporate tax rate

26

SUPPORT MEASURES (CLAUSE 21)

dti’s response (contd…)•Labour flexibility is not the only factor that investors take into account when deciding whether to locate its business in an SEZ. Other factors include infrastructure development, stability and support measures (including incentives)

•An assumption is being made that policies adopted by other countries on SEZs should be adopted here. dti is of the view that there is no “one-size fits all” approach and South Africa must formulates policy that meets its needs and is appropriate to its circumstances

•In any event the trend by SEZs globally is to dismantle previous anti-labour provisions of zone policies and move towards greater adherence to universal labour standards as defined by ILO. South Africa has adopted these standards in our Constitution and labour legislation

• 27

ONE STOP SHOP [CLAUSES 2(f) & 34(k)]

Issues raised

•Bill should specify mechanisms to streamline approval processes to reduce “red tape” (RBIDZ, FMF, CAIA, & ELIDZ) Page 5 Line 11, Page 14 Line 47

dti’s response

•The Bill facilitates the establishment of a one stop shop Page 5 Line 11, Page 14 Line 47

•Representation on the Board of departments relevant to SEZs will contribute to inter-governmental co-ordination and co-operation aimed at streamlining processes Page 6 Line 5

•Details of how processes will be streamlined cannot be legislated on

28

BUSINESSES LOCATED IN SEZ

Issues raised

•It is proposed that the Board and not the Minister should approve businesses to be located in an SEZ in order to avoid delays [clause 37] (ELIDZ & RBIDZ) Page 15 Line 34•The Bill does not provide whether a business that no longer qualifies to locate in the SEZ must remain in the SEZ or be removed (ELIDZ)•It is proposed that such a business remains in the SEZ but not receive any of the benefits associated to operating in the SEZ (ELIDZ)dti’s response•dti disagrees with the proposal that the Board approves businesses

•The Minister must make this decision in order to ensure that a business located in an SEZ complies with the objectives of the SEZ legislative framework

29

BUSINESSES LOCATED IN SEZ

dti’s response (contd…)

•As businesses are entitled to support measures (including tax incentives) it is an important control measure and it is appropriate that Minister exercises this power

•Clause 37 allows the Minister to impose conditions when approving an application to locate in an SEZ Page 15 Line 45

•Minister may stipulate a condition that should the locator no longer qualify to locate in the zone it must either exit the zone or re-negotiate approval to remain in SEZ

30

TRANSITIONAL ARRANGEMENTS (CLAUSE 38)

Issues raised

•The Bill should provide for project specific transitional arrangements taking into account each individual IDZ developmental path (ELIDZ & RBIDZ) Page 15 Line 49

dti’s response

•The dti is of the view that transitional arrangements for IDZs provided for in the Bill are appropriate to ensure effective transition for IDZs Page 15 Line 49

31

GUIDELINES (CLAUSE 39)

Issues raised

•Guidelines should be published for public comment and must be binding on the dti (BUSA & CAIA) Page 16 Line 11

dti’s response

•Guidelines are not subordinate legislation and are provided to assist potential applicants on the practical issues arising in applying the Bill Page 16 Line 11

•Guidelines are dynamic in nature

32

DELEGATION

Issues raised•Concerns have been raised that in light of the Minister’s other commitments, he will not have sufficient time to perform his functions in terms of the Bill and this will lead to delays in decision making processes (ELIDZ, RBIDZ)dti’s response•The dti is of the view that the Minister will be able to perform his functions in the Bill within prescribed, reasonable time frames

•Experience of successful SEZs in other countries show that it is unlikely that the number of applications received will be excessive e.g. Batam in Indonesia (500km2) at it’s peak receives 15 locator applications per month

•dti agrees to empower the Minister to delegate certain specified functions

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THANK YOU

QUESTIONS

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