INDUSTRIAL development zones (IDZs) were now regarded as the most effective way to boost the country’s manufacturing capacity and attract foreign direct investment, Frost & Sullivan said yesterday.

The consulting firm said successful examples could be found in India, China and Mauritius.

In India alone, it said, IDZs had contributed to growth of more than 100% in manufacturing and exports over the past four years.

South Africa’s recently released Industrial Policy Action Plan (IPAP2) places a strong emphasis on the development of local inputs into manufacturing processes, F&S said.

“However, there are currently only two IDZs up and running in the country, despite a favourable industrial policy that promotes their development,” says Frost & Sullivan analyst Laura Peinke. “These are in East London and Coega.”

In East London, the focus has been on developing capabilities in electronics and automotives. The cost of developing the East London IDZ has been in the region of R200- million. But it has already seen impressive results. Fourteen major investors have taken advantage of the zone and it has attracted a total investment of R920-million.

“Of particular importance is that the Coega and East London IDZs have been responsible for the creation of 2622 and 1313 direct jobs respectively,” Peinke said.

“In addition, major new developments at Coega augur well for the creation of additional jobs, and refining capacity. The planned Mthombo refinery will be the largest of its kind in Africa, create more than 8000 direct jobs and save the local economy more than R18-billion a year in imports.”

Considering one of the main objectives of IPAP2 is to create additional jobs, it should make sense for the government to fast-track licensing permits and reduce bureaucracy delays for the development of the remaining three IDZs.

The East London IDZ has also been the centre of increased investor interest from the Asian market.

However, one of the biggest constraints to attracting investors into the local IDZs has been the labour regulations in South Africa. The refusal of the government to introduce concessions on labour laws has been criticised as the single biggest thing restricting investment growth.

“It is entirely reasonable to implement a different system of labour regulation for IDZs, particularly ensuring that firms are allowed to be exempt from the more onerous labour laws,” Peinke said.

Mauritius and Madagascar have managed to establish solid brand reputations, with a sound level of service commitment from the local governments and business community. “South Africa has the competitive advantage of better tax incentives than either of these countries,” Peinke says.

“If the government focuses on rethinking the IDZs to incorporate labour-intensive industries with quality administration and developing economies of scale, the IDZs could see increased investment and sustainable contribution.”

The effects of the infrastructure and investment developments from IDZs are often felt beyond the zones themselves. Spin-offs and indirect job creation have impacted on the local economy, but have not reached the level they should as yet.

“Frost & Sullivan believes that despite fears that investors may look to regions where it is cheaper to produce, such as the East African Trade Zone, (EATZ), South Africa has already proven its ability to create sustainable IDZs.

“The zones here are also further progressed than the EATZ, and therefore have the ability to sustain their competitive advantage if given the necessary support,” Pienke saidys. – I-Net Bridge