Exploring joint ventures for SEZ

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Ethiopia’s Hawassa Industrial Park

VictorBhoroma
analyst

The Zimbabwean government has designated various tracts of land as Special Economic Zones (SEZ) in a noble production oriented policy which requires follow through.

The Special Economic Zones Act (Chapter 14:34) of October 2016 gave birth to the Zimbabwe Special Economic Zones Authority (ZimSeza) which is a statutory body set up specifically to attract investment, designate, develop and administer economic zones in various parts of Zimbabwe.

The country has been struggling to attract foreign investment with FDI inflows averaging US$340 million from 2009 to 2018 against a Sadc regional average of over US$1,2 billion.

Special economic zones projects have been successfully implemented in other countries including Ethiopia (Hawassa Industrial Park), Tanzania (Benjamin Mkapa SEZ), Kenya (Mombasa Industrial Park), India and China.

India and China (The fastest growing economies in the world) have various types of commerce and trade investment zones namely export processing, pharmaceutical technology, free trade zones, technology parks and tourism zones.

To date, the government has set aside Sunway City in Harare as a technological hub, Victoria Falls as both a financial and tourism hub and Bulawayo as an industrial economic zone.

The revival of Bulawayo is premised on the rehabilitation of NRZ, the revival of beef processing, leather manufacturing, cotton and textile, steel and foundry industries that can be key in employment creation and foreign currency generation. In addition to the above, a corridor stretching from Victoria Falls-Binga-Gwayi-Kariba has been set aside for tourism, Mutare has been set aside for Diamond cutting and polishing while Lupane has been earmarked for petro-chemical and energy industries. Other areas are still being identified or declared countrywide.

In terms of tax incentives for special economic zones. The Finance Act of 2017 points that there will be zero-rating of corporate income tax for the first five years of setting up with a corporate tax rate of 15% applying thereafter and duty-free importation of raw materials and capital equipment. The other fiscal incentives include exemption from capital gain tax, exemption from non-residents tax on fees for services that are not locally available and exemption from non-residents tax on royalties.

Besides gazzetting all these incentives among others, uptake is disturbingly low in SEZs. For SEZs to get investment, the government must provide potential investors with productivity incentives rather than simply tax incentives.

Research has proved that when potential investors are deciding whether to invest in a SEZ or outside, tax incentives are among the least important of their considerations.
Investors prioritise high-quality infrastructure such as water, electricity, security, internet, road and rail network for access to the market and efficient administration such as one-stop shops for licensing and regulatory compliance.

These aspects directly feed into the cost of production before the product even hits the market. The Hawassa Industrial Park in Ethiopia provided for these incentives and uptake has been impressive with world class companies setting up in the park.

One of the key functions of ZimSEZA is to grant permits to developers for infrastructure development projects including roads, rail, industrial shells, information and communications technology infrastructure, water and electricity.

The major reason why there has not been an uptake in SEZs is that there is poor or no infrastructure in the identified areas, especially those outside Harare and the government lacks the required funding to develop infrastructure in these economic zones.

In order to overcome this hurdle and accelerate export oriented production in special economic zones, the Zimbabwean government should consider joint ventures (JVs) with private players such as financial institutions and property developers.

These joint ventures can focus on road construction, industry shells, optic fibre installation, water and electricity works in exchange for pieces of land at determined market prices. The City of Harare has pioneered these joint ventures with the construction of the Mbudzi Mall and Harare Sunshine Bazaar among others.

The joint venture strategy produces a win-win scenario as financial institutions or land developers are mainly interested in land acquisition for income generation while the government and local councils will get world class infrastructure in exchange for idle land in the proposed economic zones.

Other benefits of such an arrangement include faster project completion and reduction in funding related delays, risk sharing with private players, high quality engineering standards and collaboration in attracting quality investors to the economic zones.

The government will emerge the overall winner in the long term through industry agglomeration as other producers set up close to their buyers and suppliers, through local employment creation, export earnings and economic development.

Bhoroma is a business and economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). — vbhoroma@gmail.com or alternatively follow him on Twitter: @VictorBhoroma.

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