Will new SEZ rules pay off?

Business Writer

Zimbabwe has gazetted new Special Economic Zone (SEZ) regulations outlining the framework for the establishment, operation and management of SEZs in the country widely anticipated to stimulate domestic and foreign investments in crucial economic sectors.

The regulations, gazetted through the Statutory Instrument 226 of 2003 this week by Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube repeals the old Statutory Instrument 154 of 2018.

SEZs are designated areas that offer businesses a range of incentives, including tax breaks and reduced regulations in order to encourage investments and job creation.

While SEZs have been heralded as a critical catalyst for economic growth, Zimbabwe has struggled to attract investment despite initiatives to promote them.

Some experts believe the lack of comprehensive guidelines and a clear regulatory framework has also been the reason for the lacklustre performance of SEZs in Zimbabwe.

Under the new guidelines, individuals owning land and those with leases of not less than 25 years are now eligible to apply for SEZ permits.

The eligibility expansion is expected to broaden the pool of potential SEZ developers, fostering a more vibrant and diverse investment landscape in Zimbabwe.

By opening up SEZs opportunities to landowners and long-term leaseholders, the Government aims to harness the potential of underutilised land and accelerate economic growth.

In applying for the designation of an SEZ, the applicant shall demonstrate the availability of sufficient access to financial resources and expertise for the development and operation.

The applicant must provide the proposed geographical location, boundary specifications and map coordinates of the SEZ and a statement on the availability and accessibility to infrastructure, as well as topographical and construction constraints.

A comprehensive market-demand analysis is required, to identify strengths, weaknesses, opportunities, and threats.

This analysis should include information on local and foreign clients, potential markets, competitors, future prospects and the attractiveness of the SEZ to potential investors, according to the regulations.

A schematic master plan must be provided, along with a prospectus for an initial environmental and social impact assessment approved by the Environmental Management Agency.

If an SEZ was designated before these regulations came into effect, the SEZ owner must submit an application for the developer’s permit or operator’s permit within 180 days.

Applicants are required to demonstrate and guarantee compliance with a set of mandatory requirements.

In the case of manufacturing, SEZs must prioritise export-oriented manufacturing activities, with a minimum of 80 percent of finished products exported from the zone.

Investments in SEZs must involve the establishment of modern manufacturing plants tailored to specific economic sectors, ensuring efficient and competitive production processes.

SEZs operations must incorporate mechanisms for technology transfer, including agreements and training programmes to enhance the skills and knowledge of local human resources.

They must prioritise the employment of local personnel, aiming for a 90 percent local workforce.

Additionally, 100 percent of finished products must be derived from raw materials sourced within Zimbabwe. Applicants must provide proof of an initial investment of at least US$50 000 and demonstrate their intention to establish linkages within the domestic economy, fostering broader economic growth and development.

The license may be issued for a new business, the expansion of an existing business, or the relocation of an existing business from one SEZ to another. It may also be issued for the expansion of an existing business outside SEZ boundaries.

According to the regulations, the developers must show commitment to providing offsite infrastructure to enable the SEZ’s activation.

This includes boundary fencing, security access control and exit points, security systems, firefighting systems, and a police post. In addition, developers must provide a minimum 33kVA power line, a minimum 100 mm portable water supply line, and a minimum 18m dual-lane access road at the SEZ boundary and tarmac-paved internal road network.

An SEZ licensee is required to establish and implement the investment in compliance with the laws. This includes commencing business activities no later than 60 days after the date the SEZ licence is issued unless otherwise stated in the licence.

It should notify the Zimbabwe Investment and Development Agency immediately upon becoming aware of any non-compliance and is expected to manage waste produced as a result of its activities within the zone in compliance with the applicable environmental laws and any other national laws.

SEZ licensees are also expected to maintain company records, books of accounts, and financial statements in accordance with international financial reporting standards.

They must also have their company activities independently audited annually and submit the audit reports to the Zimbabwe Investment Development Agency.

To safeguard against speculation, ZIDA will monitor and conduct inspections on the facilities and activities of the licensees and permit holders to ensure compliance with the regulations.

In terms of SEZs fees, applicants are required to pay a designation fee of US$50 000, a developer application fee of US$20 000, and an operator permit fee of US$20 000.

An investor license fee is set at US$10 000, while an investor annual fee is US$2 500.

While the new guidelines were anticipated to provide a more transparent and predictable regulatory framework for SEZ investors, which could aid in attracting investment and fostering economic growth, SEZ specialist, Professor Gift Mugano, has expressed concerns that they do not adequately address fundamental issues.

“We welcome efforts done by the Government to develop the regulations for ZEZs,” said Prof Mugano.

“Regulations are very important; they help in operationalising the SEZ Act.

“However, there are several gaps that I have identified in the regulations. For instance . . . apart from the manufacturing sector, the regulations are silent on other types of zones.

“The regulations should have listed the type of the zones such as enterprise zones, export free trade zones, specialised zones, science and technology and green hydrogen.”

It is also not clear how the one-stop service centres would be established while not so elaborate on the development of infrastructure in terms of the SEZ development agreement between a Government and an investor or developer.

Prof Mugano emphasised that SEZs should prioritise export-oriented industries.

He expressed concern that allowing 20 percent of manufactured goods produced within SEZs to be sold domestically could create an unfair competitive advantage for SEZ-based businesses compared to those operating outside of SEZs, who do not receive the same incentives. He warned that this may result in company closures.

He cautioned even a seemingly small 20 percent allowance could pose significant challenges to local businesses.

“A multinational corporation’s 20 percent output could easily dwarf the entire production capacity of local players, putting them at a severe disadvantage.

This competitive imbalance could stifle the growth of local industries unless in sectors where a substantial portion of products are imported,” he said.

He criticised the SEZs fees as being excessive saying the designation fee of US$50 000 is particularly high, and he expressed concern about its potential to deter investors.

Instead of focusing on raising funds through fees, Prof Mugano advocated for prioritising investor attraction and ensuring that investments generate tangible benefits for the country, such as job creation, value addition, import substitution where possible, exports, and broader economic benefits including the involvement of SMEs in supply chains, skills development, training, and technology transfer.

Prof Mugano said SEZ was an important vehicle for promoting investment in any country.
China has 53 percent of the world’s economic zones and as a result, they have been able to attract over 480 companies into China.

They used SEZ as a vehicle of promoting reforms.