‘SEZs will trigger economic growth’

22 Jul, 2017 - 00:07 0 Views
‘SEZs will trigger economic growth’ Dr Gono . . . In short, under SEZs, we have greater value addition and beneficiation in the very manner the President has so eloquently spoken about countless times

The Herald

Dr Gono . . . In short, under SEZs, we have greater value addition and beneficiation in the very manner the President has so eloquently spoken about countless times

Dr Gono . . . In short, under SEZs, we have greater value addition and beneficiation in the very manner the President has so eloquently spoken about countless times

Golden Sibanda THE INTERVIEW
Macro-Economic Planning and Investment Promotion Minister Dr Obert Mpofu recently appointed a Special Economic Zones (SEZs) board. The Herald Business senior writer Golden Sibanda (GS) spoke to Dr Gideon Gono (GG), the new chairman of the board, to find out more about SEZs and more. Read on.

GS: Dr Gono, congratulations on your recent appointment. To start with, many people are not very clear about what these SEZs are and what they are supposed to mean to them in terms of providing solutions to their day to day economic challenges. Can you please help our readers to digest and understand this?

GG: Golden, thank you for this wonderful opportunity and for coming over to do this interview.

The Special Economic Zones (SEZs) in Zimbabwe are coming against the backdrop of persistent negative performance across all sectors of our economy for a variety of reasons — save for agriculture this year and in other good previous rainy seasons.

The SEZs policy initiative is a broad-based and well-thought-out Government economic development, revival and revitalisation strategy under Zim-Asset and specifically point number 10 under the President’s 10 Point Plan, the creation and implementation of Special Economic Zones.

To achieve the envisaged economic transformation under Zim-Asset, SEZs will trigger economic growth and development by stimulating local, foreign and Diaspora investment, promote domestic competitiveness and finally facilitate both import substitution and export-led growth, driven by among others, high-technology initiatives.

Zimbabwe is a land of immense resources and opportunities, with great potential to deliver economically.

However, economic modernisation or transformation can only be achieved through pragmatic policies and these are fundamental to stimulate the domestic economy by way of investment attraction, retention and growth; employment creation and job-retention; sustained export growth, import substitution and positive trade balances; serious technology transfers; agricultural mechanisation and intensive agro processing; cost-effective re-tooling of mines and industry.

SEZs come about in that context as a coherent open economic policy strategy to drive domestic economic structural change through more vigorous private sector participation for growth and prosperity.

Properly harnessed, implemented and nurtured with top to bottom tenacious determination, proper partnerships for FDI, participation of the Diaspora, seriousness of economic purpose, clarity of thought and vision as well as a non-tolerant attitude towards any form of corruption, indiscipline or insolence on the part of those that will be approved to operate in the SEZs, this policy initiative holds great potential to turn around the economy through creating healthy self-sustaining local business inside and outside the SEZs and building viable effective partnerships by yoking the correct local and foreign companies.

The visits to other countries by His Excellency the President, his deputies, ministers and officials to Special Economic Zones in such countries as China, Russia, India, Japan, Malaysia, Singapore, Ethiopia, Tanzania, Nigeria, Kenya and Ghana among many others, have firmed the Zimbabwean Government’s resolve to implement the SEZs.

There is strong belief at all levels of Government that the development of SEZs, for long-term survival, combined with the needed political will and an enabling policy environment to enhance specialisation, liberalisation and competition, attention to local comparative advantages — in our case that happens to be the agriculture sector — and our skilled local and Diaspora labour force, we can achieve sustained GDP growth to, ultimately, better our people’s lives. That is our overriding aspiration as the SEZ board.

Basically, our SEZs model motivated by innovation and creating knowledge is designed for the next millennium and should serve as a major economic programme of national significance to deliver on the aspirations contained in Zim-Asset.

I am confident too that our abundant mineral resources, year round, tourist-friendly weather, highly literate and hard-working population, skilled manpower, good agricultural potential and a resilient industrial, financial and telecoms/ICT base, among other positives, make for a strong foundation upon which to build SEZs. With this strong base, we can begin to rebuild our economy and afford our people decent lives.

GS: Do you think that people will buy into this new concept and are these SEZs not the same as the failed Export Processing Zones once introduced in the early to mid-1990s? How different are these SEZs from those gone by, which targeted export growth, employment creation and all the niceties you are referring to?

GG: You raise a very important point, but there are fundamental differences between SEZs and EPZs. SEZs are broader in context than EPZs and besides, times have changed.

Economic and Technical Development Zones (ETDZs), Free Trade Zones (FTZs), Export Processing Zones (EPZs) and Industrial Zones are all previous variations of the present SEZs.

In the strictest sense, SEZs or their variations are implemented in geographically delimited areas, offering varied incentives designed to fill national investment gaps.

Other successful SEZs variations are not geographically delimited and a good example that comes to mind is Mauritius.

As development tools, SEZs vary in shape, form, size and scope, but all are fine-tuned to operate under different policy regimes, offering variations of trade and tax incentives that share the same goals of stimulating economic revival or enhancing economic development.

Our experience as Zimbabwe is that SEZs began as EPZs in the 1980s and were geared towards exporting low-value products.

SEZs are a progression to high-value added products. In short, under SEZs, we have greater value addition and beneficiation in the very manner the President has so eloquently spoken about countless times.

GS: Given that EPZ policies were not that successful, what is the confidence level that this will be different?

GG: We will have an eagle’s policy eye towards the critical twins of execution and success through deploying the required preferential policy treatment and adopting an environment of SEZs operational autonomy, targeting sector attractive incentives, ensuring sustainable backward and forward linkages and championing proper hygiene behaviour by beneficiaries of the SEZs policy regime.

Together and rightly coordinated, these policy interventions can spur countries to levels of technological development, export growth, price stability, job creation and sustained economic growth that are the envy of many.

Even if we accept that the difference between EPZs and SEZs is small, should we be held hostage by yesterday’s failures or setbacks? Today’s opportunities compel us as a people to try again, to refuse to be discouraged.

Remember, no winter, however long and harsh, lasts forever. Soon, the cold winter gives way to spring, and spring of course to the collective summer of our people!

If we are not careful, it’s so easy to lose sight of the fact that most successes in life that we so often take for granted were born out of many long trials and failures. As long as we don’t give up, we can surmount our most difficult challenges.

If anything, we are drawing lessons from these EPZs of yesterday and we are wiser because of them as we commit ourselves to today’s SEZs. Our firm desire is to make sure we overcome the challenges that beset and consequently hamstrung yesterday’s EPZs.

We have an eye set sharp on addressing insufficient back and forward linkages with the local economy, limitations on technological transfers and human capital constraints.

It’s also worth pointing out that local comparative advantages and technical expertise, and not short-sighted tribal, regional or political considerations will inform the SEZs strategy.

GS: So what would you consider to be some of the key success factors?

GG: Partnerships between local Zimbabweans, the Diaspora community and foreign investors will be key in ensuring that SEZs don’t suffer from poor and stagnated performance. We want SEZs that are not isolated from their local communities, but that will sink deep roots of development into the local communities.

The evidence from countries like China shows that, in the long run, zones with strong linkages to the local economy tend to be the most successful ones.

As far as the adoption of SEZs go, the winds are blowing in our favour: there are many success stories and otherwise, of SEZs in and outside Africa to draw lessons from; many helping hands in and outside Government, especially our vibrantly talented Diaspora community; and lastly, the goodwill of the international community that is eager to engage us.

As chairman of the SEZ board, I can only ask that we reflect on China, Singapore, Japan, Russia, the USA, Britain and others and the socio-economic battles they have weathered over the years but have persevered. We too will succeed if we put our minds and hearts to it, our previous setbacks notwithstanding!

GS: Coming to the internal setup of SEZs, how is your board proposing to go about implementing its mandate and are the three areas mentioned so far going to be the only ones to focus on in respect of your SEZs?

GG: The Government has identified Sunway City in Harare (Ruwa) area, Bulawayo and Victoria Falls as designated SEZ locations to initially focus on. The board welcomes these locations, but we are not going to be limited in our scope to these three places only.

Our playgrounds are all the 10 provinces of the country and districts, which offer comparative advantages in their respective areas of specialisation.

We consider the creation of jobs inside SEZs, outside the SEZs through the supply chains, the generation of exports for foreign exchange earnings, import substitution and cut our import bill and all other Zim-Asset goals and 10Point Plan as the anchor pillars to our efforts.

GS: If I may interject Mr Chairman, what are the key requirements for the SEZs?

GG: I must say our licensing will be guided by the need to adhere to key “on-the ground” required conditions that show that an area is ripe for development. These location suitability conditions include connected transport, high availability of water, energy infrastructure and skilled manpower.

The board will remain seized with creating an open enabling environment through engaging the Government, quality infrastructure, financing resources and other financial instruments, efficiency in central and local Government in any administrative requests and needs.

It is the economics of comparative advantage that is going to make our industrial base competitive inside the country and outside, regionally and internationally.

Yet as much as we believe competition is healthy and the mother of all innovation and inventions, we will try to balance over competition among the same industry zones against allowing key room for consolidation first so that we give a couple of zones doing the same activities an incubation window to grow and work properly first.

It is not sentiment or nostalgia where these do not make economic sense, especially given the fact that the benefits to be granted to the operators in these zones represent public money that should have accrued to the fiscus in the first place but are now being foregone in favour of anticipated future benefits.

That future cannot be too far off before subsidiary benefits start to show. Put differently, whatever our sentiments may be, we cannot and should not expect the board to approve a proposal to beneficiate Hwange coal in Mutare and diamonds in Hwange; beneficiate cotton in Marange (Manicaland) while Mutoko and Domboshawa tomatoes are beneficiated in Masvingo or Gwanda.

Equally, we cannot approve a proposal that seeks to bring hardwood all the way from Matabeleland North to beneficiate and make hardwood furniture in Manicaland. We will ask the question “why not set up your factory in Mat North and provide jobs and benefits to people from that region?”

That is the kind of zone economics we have appetite for and will encourage. Let’s bring industries closer to sources of primary activity.

Therefore, before coming to us, applicants must think carefully about their cost chains and choose between proximity to raw materials or markets, whichever yields greater value to them, the country and local communities. Ultimately, we want our SEZs to drive prices down while adding value to our exports through beneficiation.

President Mugabe has preached the unique economic gospel of value addition and beneficiation far, loud and long enough from the pedestals of his AU chair, SADC last year, and nationally here.

It’s time to act and we shall drive the action in collaboration with all ministries of the Government, parastatals, local authorities, industry, universities, youths, women, embassies locally and abroad, all arms of our security, as well as law and order maintenance to make Zimbabwe the jewel economy of Africa and the go-to place for business, leisure and education again.

GS: What about policy inconsistencies of the past and other infrastructure shortcomings such as electricity which seem to be a challenge to industry everywhere. How are you going to deal with these constraints?

GG: You bring to the fore very important points. The Government is fully aware of the drawbacks and dangers of policy inconsistencies and is committed to avoiding the same problems.

With respect to power, energy is a sector of opportunity that is screaming for investors and so far, from being a constraint, it is an opportunity.

That said, however, it is not just the availability of electricity that matters to us; it’s also about water at the proposed sites, transport infrastructure, housing, proximity to markets or raw materials and the built-up or potential for building up operating infrastructure. In other words, a host of factors will be considered as we grant permissions to applicants.

The speed of implementation and period to harvesting of results is also key to us in the same way that anyone engaged in breeding animals for either wildlife farming or domestic animal husbandry ought to consider the gestation period of what they want to do and factor these timelines into their economic thinking.

Put simply, it is said that baboons take an average of 187 days to produce a baby, camels 390 days, cows about 286 days, elephants 617-645 days.

Though very important as species in our “animal kingdom” so to speak, we would not want to populate our SEZs with elephant-type proposals that will only give us results after almost two years and even then, have to wait for another two or so years to enjoy the benefits of those projects.

This is, however, not to say we are not interested in gigantic projects that require longer times to start and complete before they deliver ginormous results. We want them, but they will not be our only focus.

The SME sector has a place in these SEZs, provided they are formal and produce for exports or import substitution, beneficiation and employ a majority of our people.

We are a country in need of quick turnaround; quick exports, quick provision of jobs as well as many other benefits alluded to earlier.

A delicate balancing act will thus be necessary in order not to concentrate national benefits onto big projects alone.

Downstream industries will also be considered where huge projects are proposed, with locals being encouraged to take advantage of big investors in their locality in terms of value-chain-supply-side or distribution economics.

GS: You bring a very important point, which you are calling “value-chain-supply-side and distribution economics”, is this your version of indigenisation and where do we stand with the Indigenisation Act when it comes to SEZs?

GG: Let me reiterate what is in the Act for you and everybody to understand once and for all. Section 56 of the Zimbabwe Special Economic Zones Act, Chapter 14:34 signed into law by President Mugabe and which was gazetted and came into law on 1 November 2016, clearly stipulates that, and I quote:

The Indigenisation and Economic Empowerment Act (Chapter 14:33) shall not apply in relation to Licensed investors operating in a special economic zone.

The authority — meaning us, The Zimbabwe Special Economic Zones Authority established in terms of Section 3 of the SEZ Act, 14:34 — must, in consultation with the Minister responsible for the administration of the Labour Act, (Chapter 28:01), provide rules for conditions of service, termination of service, dismissal from service and disciplinary proceedings that apply within every special economic zone.

I hope that this puts this matter to rest once and for all, but let me talk a little more about this aspect before we move on.

The Government is committed to indigenisation but not in the SEZs. There will, however, always be room for voluntary, and I emphasise “voluntary,” “value-based” joint ventures between foreign investors and locals with resources to contribute to the proposed project.

No investor, except in the extractive industries, where the 51/ 49 proportions remain, will be enjoined with someone who has no value to add or is expecting freebies.

We as an authority or Government have no role in forcing or directing any investor to partner with anyone outside their own choice.

Zimbabweans in the Diaspora have a great opportunity here to identify financial and technology partners as well as markets and come to invest in these SEZs.

There will, however, be no room for briefcase business people in the SEZs or tolerance for anyone believing that the SEZs are fertile ground for nefarious activities, corrupt practices, intimidation of investor community or anyone bent on causing mischief of any nature.

The SEZs that we envision to create will not have any window, tiny as it might be imagined, for investor-property expropriation or investor abuse, real or imaginary. There will be mechanisms to report and guard against that.

The zones must signal a new investor-friendly disposition geared towards attracting some of the finest breed of investors from all four corners of the globe, who are committed to transparency, good governance and entrepreneurial ingenuity and where reward is allowed to blossom and flourish.

They must be a place where our universities and university graduates and where silicon-valley type of billionaires can emerge and where technical people can express their life-long dreams and experiences, capabilities learned or acquired locally or from the Diaspora, a place every worker there and visitor should want to work at, live around, protect and not want to leave.

Equally for investors, these zones will not be places for them to hide while perpetrating nefarious activities that seek to bleed this country and people of its resources and wealth.

They won’t be places for growing all forms and manner of corruption ranging from under-and/ or-over invoicing gimmicks, money laundering, mistreatment and blackmail of workers or places to solve the unemployment problems of their own countries of origin while ignoring competent skills abundant in Zimbabweans.

Such application for unlimited times from expatriate permissions will be frowned upon. Fortunately, while the Act allows us to act like Santa or Father Christmas where benefits are concerned, it also provides us with sufficient punitive measures where untoward behaviour is proven.

While no enforcement of partnerships will be thrust upon the investors, it is a friendly and pragmatic approach for any investor to seek to have locals partnering them in their endeavours for value and work out, agree on mutually acceptable, again for value, levels of ownership participation and encouragement of value chain supply and marketing side economics.

In order to promote cohesion and common approach to common interests and providing solutions to common challenges, be they from investors or the authority, each SEZ will be encouraged to be part of a localised and then national Confederation of Zimbabwe’s SEZs in the first instance so that we grow together in our quest to building world class-type SEZs in Zimbabwe.

In time, these confederations will be the focal points for more business attractions from where they come, based on the excellent conditions of operation they are expected to experience.

GS: Mr Chairman, you speak as if you have been in this position for months yet you are just a couple of weeks old in the position. How is that possible?

GG: The truth behind my clarity of vision is that I have in the last 7 days had intensive probationary sessions with the Chief Secretary to the President and Cabinet, his three deputies, heads of ministries, permanent secretaries and other middle level officials. It was a crash course on the SEZs at both theoretical and practical levels.

I have also had a consultative session with some of the country’s captains of business for their input on their perspectives on the entry of SEZs and where and how they can change things for the better.

I have engaged the Diaspora, who remain Zimbabwe’s biggest human capital investment and the low hanging fruit of expertise, networks and funding.

I have also engaged locally some of the key economic actors and key groups that include women and youth organisations, some of the war veterans memberships and members of the Legislature in both houses and local governments; through one of our board members’ influence on her husband, we have also been able to engage with some of the sharp minds even in army.

I also have had meetings with some of the key ministries and we will be engaging Minister of Finance Patrick Chinamasa and Governor of RBZ, and continue with engagement of ministers responsible for mines, industry, agriculture, labour, higher education, science and technology, environment and climate change, energy, local government, home affairs, among many others, parastatal heads, Zimra, industry bodies, local authorities, embassies and other stakeholders like churches and universities for a value-adding commonality of positions and seeking their support.

Plans are in place also to engage the local investment community and Diaspora to ensure that both groups are prioritised and that their concerns and needs in participating in the SEZs get prioritised consideration.

Last but not least, the board will extend a hand to the moderates in the opposition for input and participation because this an inclusive national agenda and we can only succeed if we pull together as one team that is brave enough to bury our differences at both intra-party or inter-party levels.

If we pull together as a nation, there is no reason why Zimbabwe cannot move from the so-called third or bottom ladder among emerging economies to a first world, developed economy in less than 20 years. Singapore took 30 years.

Without such support, the SEZs won’t realise their full potential. So yes, we are a busy board for the foreseeable future.

GS: What incentives exist at the moment to give should an investor approach your board tomorrow?

GG: Well, the world of investment attraction is a very competitive one and capital will usually flow where it not only feels safe, but where the rewards are better than those offered by other destinations.

The board will strive to keep the Minister of Finance appraised of the developments in this area on a continuous basis, but suffice to say that at present, the Honourable Minister of Finance prescribed the following benefits in his 2017 fiscal budget and I believe these are quite competitive:

One, Corporate Tax: Exemption from corporate income tax for the first 5 years of operation. Thereafter, a corporate tax rate of 15 percent is applicable.

Two, Special Initial Allowance (SIA): SIA on capital equipment to be allowed at the rate of 50 percent of cost from year one and 25 percent in subsequent two years.

Three, Customs Duty on Capital Equipment: Capital equipment for SEZs will be imported duty-free.

Four, Customs Duty on Raw Materials: Inputs which include raw materials and intermediary products imported for use by SEZ located companies will be exempted from import duty save for raw materials produced locally.

Five, Employee’s Tax: Limited to a flat rate of 15 percent for specialist expatriate staff.

Six, Non-Residents exemptions are also granted in respect of tax on royalties and dividends.

So, to start with, these are the benefits on offer and as I said, the board is scanning the world for comparative figures.

GS: Why do you think the Diaspora and foreign investors will respond? And will the results be different from EPZ?

GG: Government’s efforts in the past couple of months have been focused at getting the needed momentum to Zim-Asset through the Ease of Doing business measures and establishment of the SEZ zones.

As for my involvement, I believe my greatest value is in my determination to turn around any situation matched with a culture of sufficiently consulting and involving as necessary stakeholders of any programme.

Starting with the Diaspora, a fundamental difference is that I plan to work with my minister in reaching out to the Diaspora directly and find a common ground.

I know the minister is working on finalising the Diaspora policy with a clear focus and desire to capture concerns and input from the Diaspora.

Honest, sincere and candid discussion and engagement with the Diaspora is what is needed to bring on board the Diaspora into the SEZs, which provide immense opportunities.

So in the fullness of time, we will reach out to the Diaspora and facilitate their participation in the SEZs because they are critical skilled source of expertise, networks, funding and partnerships.

We have to construct that bridge of trust relationship and mutual respect and appreciate that though open visible engagement, involvement and consultation of the Diaspora is what will make them feel the needed stake of ownership and legitimacy to our outreach for Diaspora participation.

In looking at the SEZs, previous attempts packaged under the EPZ genre and impacted by other policy paradigms like ESAP, I can confirm that our new mission is guided by critical departure points of avoiding quick returns, which has been done through properly tooling the Zimbabwe Investment Authority and the Zimbabwe SEZs Authority.

Our board has received the needed unwavering political commitment on this policy measure; the ongoing consultation to implement an inclusive and broad policy incentives environment supported by the relevant statutory instruments and regulatory framework.

There are obviously challenges that, even though they are outside our space, we will continue to work to minimise their impact which includes anxieties around sanctions and internal political developments.

Lastly, we continue to encourage Government to treat us from the policy inconsistencies and incoherence viruses.

On the foreign investors, I believe we have the solution for them in the SEZs to the extent that our local investors are rightly complaining that we need to review the measures in place so that they are not skewed towards the foreign investor.

This actually makes sense, because we have a dollarised economy, so if we have local investors with the US dollars needed for investment, then we should and need to tap into that without fail.

As an entrepreneur myself and banker, I value long-term survival, so the regulatory framework in place will be defended by me against any illegal or illegitimate expropriations.

I believe if we can inoculate the SEZs from the threats to any private property, SEZs will definitely be able to effectively contribute to the needed economic recovery and getting the economy back on track.

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