[Bill-Watch] Bill Watch 18/2014 of 16th April [Special Economic Zones]

[Veritas Bill Watch]

BILL WATCH 18/2014
[16th April 2014]
Special Economic Zones
Advertisements have recently appeared in the press announcing a workshop
which the Government will be holding on the re-establishment of Special
Economic Zones [SEZs] in Zimbabwe.  These zones, according to the
advertisement, will be designated geographical regions where enterprises can
be established operating under special regulations;  the zones are intended
to enhance competitiveness and job creation and promote foreign direct
investment in Zimbabwe.
The stated purpose of the workshop is to bring together Ministers,
Parliamentarians, senior civil servants, parastatals, bankers,
industrialists, diplomats, academics, representatives of the private sector,
investors, the media, and international experts on the development of SEZs.
According to a statement posted on the Government website, the Government
has decided that SEZs are a way to encourage exports and foreign exchange
earnings while addressing the massive unemployment rate, broadening the
economic base and attracting development and new technologies [statement
available from addresses at the end of this bulletin]. 
The purpose of the workshop is to discuss how best to establish and operate
SEZs in Zimbabwe, drawing on the experience of other countries and to draw
up recommendations and implementation timeframes for the establishment of
SEZs.  
Notable for not being included in the published list of invitees, were the
representatives of labour.  Nor among the international bodies listed such
as World Bank, Africa Development Bank, etc., was the International Labour
Organisation [ILO] mentioned.  This may have been rectified, but if not it
may be in labour's interest to closely monitor the recommendations arising
from the workshop.
Note: The flighted advertisements did not mention dates or venues.  Veritas
only received its invitation [dated 4th April] today 16th April, giving the
dates as 16th to 17th, i.e. today and tomorrow, in Harare.  
History of SEZs in Zimbabwe
This will not be the first time that the Government has turned to SEZs as a
means to attract investment and accelerate the economy out of stagnation.
At first, SEZs were established under the Income Tax Act;  they were then
called Export Processing Zones [EPZs].  Exporters who operated within them
were given tax exemptions but otherwise they enjoyed, no special exemptions
from the ordinary laws of Zimbabwe.  Later, in 1995, the Export Processing
Zones Act was promulgated which established a parastatal authority
responsible for establishing export processing zones, attracting investment
to the zones, and issuing licences for businesses to operate within them.
Section 56 of the Act stated that the Labour Relations Act [now the Labour
Act] would not apply within export processing zones; but this section was
repealed in December 2005.  In 2007 the Export Processing Zones Act was
repealed by the Zimbabwe Investment Authority Act, though industries that
were licensed to operate in the zones continued to enjoy certain tax
advantages.  [Export Processing Zones Act available from addresses at the
end of this bulletin]
A feature that may have reduced the effectiveness of the Export Processing
Zones Act was that any premises or place could be declared an export
processing zone;  even single rooms could be so declared.  Virtually any
manufacturing business which was export-oriented to at least some degree
could get a licence under the Act, and many did.  They did not have to move
to a special zone to get the tax benefits accorded to them under the Act,
but could remain where they were.  Hence the Act did not lead to the
establishment of separate zones where export businesses were concentrated:
exporters were dispersed as before, but enjoyed tax breaks.
Nevertheless, the Act did encourage economic development.  According to a
paper quoted on the Government website, by 2004 projects in export
processing zones had created over 32 000 jobs and US$172 million worth of
investments.  Small wonder that the Government is seeking to reintroduce the
zones.
What are SEZs?
SEZs can be defined as zones which enjoy special regulatory and
institutional incentives which distinguish them from the rest of the
country.  They are larger than export processing zones and in some countries
are considered town/cities on their own.  They usually cover all industrial
and service sectors and target both foreign and domestic markets.  They
provide an array of incentives for businesses, ranging from tax incentives
to regulatory incentives.  In addition, they permit on-site residence.
For SEZs to be Effective
The only feasible way out of Zimbabwe's dire economic straits, in particular
its very high rate of unemployment, is to encourage economic activity by
increasing national production and productivity, and this in turn requires
investment which must come from foreign sources.  Clearly the Government has
recognised this by its renewed interest in SEZs.
But, for SEZs to be effective, the following conditions should be met:
.        Excellent infrastructure must be provided within the zones so that
businesses can operate with maximum efficiency.  If for example the zones
suffer the same power cuts as the rest of the country, or their roads are as
bad or the supply of water is as erratic, then investors and industrialists
will take their business elsewhere.
.        Involvement of the private sector in developing the zones should be
encouraged.
.        The zones must have close links with the rest of the country's
economy, for example through sub-contracting, the supply of goods and
services or the provision of research and development, so that the country's
industrial and business sectors can benefit from economic activity within
the zones.  As a World Bank publication puts it:  "the idea of the SEZ as an
oasis in the desert may be a mirage-an SEZ's value appears to be
intrinsically linked to the landscape in which it is situated."
.        Setting up business in a SEZ should be as simple as possible.
.        They should be seen as pilot projects to try out reforms which will
later be applied to the country as a whole.
.        Last, but by no means least, the regulatory regime must be clear
and secure.  Investors must be able to settle their legal disputes quickly
and fairly, and must be confident that the Government will protect their
rights, particularly their property rights, and will not change the rules
arbitrarily.
It is open to doubt whether our Government will be able to meet all, or
indeed any, of these conditions in its planned SEZs.
SEZs Have Drawbacks:
.        Labour issues.  There has been a tendency worldwide for labour
conditions to be regulated less rigidly in SEZs than in the rest of the
countries where they are situated.  As noted earlier, our Export Processing
Zones Act stated specifically that the Labour Act would not apply within
export processing zones.  This may encourage businesses within SEZs to
increase employment, since the costs of shedding unproductive labour are
reduced, but it can also lead to the unjustified exploitation of workers and
unsafe conditions of work.
.        Environmental issues:  A government may be tempted, in its zeal to
enhance economic development through SEZs, to ignore potential dangers to
the environment.  Setting up an SEZ in Victoria Falls, where it has been
suggested the first SEZ should be established, is a case in point.  The
Falls are a tourist attraction largely because of the unspoilt natural
environment in which they are situated, and siting an SEZ there will
endanger that environment.  Tourists are unlikely to come and watch
industrial effluent thundering into the gorge, particularly if they have to
peer through industrial smog to watch it.
.        Tax incentives:  Among the incentives governments offer potential
investors in SEZs are reductions in taxes and duties.  Once granted,
however, these incentives may be difficult to withdraw, particularly if the
investors have political influence.  Businesses in SEZs may continue to
enjoy the incentives long after they have become established and no longer
need them.
Conclusion
As so often in Bill Watches and Constitution Watches, we come to the rule of
law.  One aspect of the rule of law is that laws must be applied equally to
everyone.  Laws of general application, once enacted by Parliament, should
apply throughout the country.  It is inconsistent with the rule of law for
special zones or areas to be set up which will be outside the reach of some
laws.
If our labour laws are so rigid that they discourage employment then they
should be modified for the whole country.  If our environmental laws are so
vaguely drafted and far-reaching that they allow development to be stopped
at the whim of junior officials, then the laws should be amended so as to
clarify them for the whole country.  And if our indigenisation law
discourages foreign investment, then it should be amended throughout
Zimbabwe.  If we have bad laws, it is not an adequate remedy to set up
special zones where the laws do not apply.
 
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