Richards Bay IDZ opens for business

9 September 2011

The Richards Bay Industrial Development Zone (IDZ) on South Africa’s KwaZulu-Natal coast has finally commenced its Phase 1A development in preparation for forthcoming investors.

The 216-hectare industrial estate was promulgated in 2002 as a public entity, with 60% of its shares held by the KwaZulu-Natal Department of Economic Development and Tourism and 40% by the City of uMhlatuze, the municipality that incorporates Richards Bay and Empangeni.

“We are strategically placed – about 500km from the financial capital of the country, located adjacent to a natural deep sea water port, and operating in a region full of global players,” Richards Bay IDZ chief executive Ike Nxedlana said at a sod-turning ceremony this week.

The availability of feedstock such as aluminium, heavy metals, various chemicals, wood, pulp, paper, agricultural products, gas, coal and electricity also offer numerous downstream manufacturing possibilities for investors.

Creating opportunities, developing skills

According to Nxedlana, the rapid development of phase 1A is likely to enhance the role played by small and medium-sized enterprises.

“This is particularly the case for SMMEs that are involved in the construction industry as well as those that will benefit through up-streaming, down-streaming and beneficiation initiatives,” he said.

According to KwaZulu-Natal MEC for Economic Development and Tourism Mike Mabuyakhulu, the main purpose of attracting foreign investment to IDZs are to encourage value-addition activities and the export of beneficiated products from South Africa, and in the process also to transfer skills and technology to local companies.

“The key reason for developing zones is for developing industrial capability through utilising and learning from new technologies from the foreign firms rather than just solely generating foreign direct investment,” he said.

Investors already showing interest

To date, the only investor operating within the zone is Tata Steel, which has an investment of R960-million, and employs 184 permanent staff and 85 full-time contract employees.

Nxedlana said that they were also on the verge of establishing the first customs controlled area within an industrial development zone in South Africa, at Tata Steel’s facilities. It will also be the first area to test the customs control area policy recently approved by the South African Revenue Service.

He added that by October this year, they would announce the identity of a company that would invest about R1-billion to establish a fertiliser exporting company within the Richards Bay IDZ, creating about 1 000 indirect jobs during the construction phase and 150 permanent jobs thereafter.

Nxedlana added that many other potential investors had shown an interest in the zone, naming pulp and paper producer Pulp United as one of them.

The Richards Bay IDZ will also undertake a study and prepare analytical reports to identify niche foreign markets and suggest methods to intensify local participation in the IDZ programme.

Developing a national policy

According to Mabuyakhulu, the development of a national policy on special economic development zones will allow for additional incentives to further entice investors to these zones, with most countries with similar zones offering a range of tax exemptions and reduced or waived customs duties.

He added that tax incentives are easier to provide than changes to the national tax regime, and can be a means for governments to signal their commitment to investment.

“When investigating Intel’s decision to invest in Costa Rica, the expression of the Costa Rican government’s support and commitment through the provision of a tax incentive was of huge importance to their decision to invest … even though Costa Rica did not offer the highest incentives compared to other nations competing for investments,” he explained.

When considering incentives that involve customs control areas, Mabuyakhulu said it was important to consider the costs of administration as well as the need to discourage rent-seeking or mobility of investors when a better short-term incentive was available elsewhere.

He suggested that the IDZ policy could refer to sector specific incentives based sectors promoted through Industrial policy.

“It is also important that some creative incentives are packaged around the creation of jobs in relation to the objectives of the New Growth Path,” he said. “Incentives should be packaged in such a way that industries that have a high labour absorption rate are attracted to the zone.”

SAinfo reporter