Newsletter No 17/14 May 2021
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Ann Bernstein: New approach to foundering SEZs is needed to tackle joblessness
If evaluated in terms of how much additional value they create, many zones worldwide are expensive failures.
You would not think it judging by the attention they receive, but special economic zones (SEZs) fail more often than they succeed. This is all the more true when SEZ policy regimes are evaluated in terms of how much additional value they create. When viewed in this light many SEZ regimes worldwide are expensive failures.
After sinking about R6bn into it, the Nigerian government’s Calabar Free-Trade Zone is a huge white elephant. India was one of the first countries to experiment with SEZs in the 1960s but the programme, which consists of hundreds of zones, has so far resulted in customs revenue losses of at least R700bn, with debatable developmental benefits. When considering whether this programme has been worthwhile, all the alternative ways in which this enormous amount could have been spent to stimulate development should be considered.
SEZs tend to fail when zones are not special enough. An SEZ can only attract capital investment in a lagging economy if the zone is designed to be sufficiently different from the rest of the economy to make it worthwhile for investors. If a country’s prevailing policies are not growth-enhancing, designating an area where only slightly altered policies are implemented will be of little use. SEZs usually fail because there is a lack of willingness to focus on the real problems to be solved.
Setting up SEZs in peripheral or declining regions hardly ever works, mainly because the level of subsidy required to make such areas attractive typically exceeds the zone’s economic feasibility. Linkages with existing business clusters are more difficult and costly, key infrastructure is likely to be minimal or missing entirely, and the resources and capacity to manage faraway programmes are usually lacking. Politicians may trumpet successes, but when the cost of investment and employment generation is calculated, the reality is often failure dressed up as success.
Fiscal incentives, if used at all, should be limited and focused. Clear objectives are crucial. For example, if the goal is to create many more jobs, incentives should reflect that, for example through a wage subsidy.
SEZs are localised. They do not create systemic change unless and until lessons from their success are used to shape policy elsewhere. In a country that does not have growth-enhancing policies, SEZs may thus be thought of as the option of the second-best. SEZs are most effective when they identify the constraints to investment in a country and resolve them inside the zone.
According to the World Bank’s Thomas Farole, one of the world’s leading SEZ experts, “the real success stories used SEZs to pilot ‘radical’ policies that were untenable on a national level”. This was the role played by SEZs in China and Mauritius, two of the places where they have had the most dramatic success.
Successful SEZs should be correctly designed. Though there is no blueprint, they share a list of attributes. They are spatially designated business hubs where regulations differ from the rest of the economy — hence the term “special”. Integral to successful SEZs is supporting industrialisation and integration into global value chains. Chances of success are therefore maximised when zones are located at, in, or near ports. And because SEZs have been used as part of an export-driven manufacturing-based programme, bringing in capital, technology and skills from abroad — managerial, operational, or entrepreneurial — has contributed enormously to zone successes.
How then should SA rethink its SEZ programme? The country’s biggest challenge is the unemployment crisis. Though it is impossible to measure this precisely, it is highly likely that SA’s labour market regime has a large effect on unemployment as it blocks unskilled job seekers from entering markets, since the price of their labour does not match the productivity these workers can achieve in sectors where they could potentially be employed.
A new approach to SEZs is required to tackle this issue. An experimental reform zone with a modified labour market regime should be located in Coega, which is ideally situated for such an experiment, having already been built. There is a large force of semi-skilled job seekers on the doorstep at Motherwell — people who have been protesting for jobs, some of whom have experience in industrial work, particularly in textiles. Coega also has access to an underutilised port.
Companies would pay the national minimum wage but would not be bound by sectorally determined negotiations. Instead, wages would be agreed at factory level. The employment tax incentive would be extended to all workers earning below the minimum, not just first-time workers. Firms in the SEZ would be allowed to bring in skilled managers, especially those who know and understand international markets. Basic health and safety rules would apply but other issues such as hours and piece work could be negotiated.
Apart from these concessions, no other fiscal incentives would be offered. To protect all other local firms, the SEZ would be export-only; the local market would be off limits for businesses inside the zone and only new firms could locate in the zone. The SEZ would thus function as if it were an island off the coast of SA: a kind of policy laboratory-cum-shop window in which proposed reforms can be tested.
This will involve a new approach to SEZs in SA, requiring only minimal fiscal resources compared with current bulk infrastructure subsidies and tax breaks. If it is a demonstrable success, it may be possible to consider extending these policies to other parts of the economy and start creating jobs at the scale so desperately needed.
Our proposal is underpinned by two key facts: SA’s greatest test is creating jobs for millions of young, unskilled, inexperienced work-seekers, but the labour policy reforms needed to encourage labour-intensive industries are likely to be blocked by vested interests and sceptical views within the governing alliance.
A new kind of SEZ is worth trying because it tackles both these problems while avoiding the pitfalls of other unsuccessful zones. It can test whether and to what extent SA could create labour-intensive manufacturing activities that could absorb low-income workers, while minimising the political costs of implementing the reforms needed to make this possible.
There is growing support for this kind of idea: in the 2020 ANC economic recovery strategy, the Treasury’s 2019 growth agenda, former president Kgalema Motlanthe’s high-level panel report to parliament in 2018, from ANC national executive committee member Joel Netshitenzhe, and Nobel prize winner Paul Romer.
Labour-intensive manufacturing has been the linchpin of industrialisation worldwide since the 19th century. These jobs have been critical in helping move hundreds of millions of people out of poverty in many parts of Asia and elsewhere in the developing world over the last 50 years.
To succeed, we need to move with speed, because due to automation manufacturing will become ever less reliant on labour. This may be the last opportunity for developing countries to achieve meaningful numbers of new industrial jobs. Let’s develop an SEZ in SA that is actually special — and let’s do it quickly. BL
• Bernstein is head of the Centre for Development and Enterprise (CDE). This article is based on a new CDE report, “What if SA Had a Special Economic Zone That Was Actually Special?”
Lesotho: Jobs in textile factories at risk as govt. fails to address US concerns of official complicity in human trafficking
‘TRC Blasts Govt Over Human Trafficking’ 17 February 2021
A leading local human rights body has slammed the government for its alleged failure to protect the human rights of ordinary citizens by decisively addressing the human trafficking concerns raised by the United States (US) government. In a statement to the Lesotho Times last night, the Transformation Resource Centre (TRC) accused the government of paying lip service to the US government’s concerns. It said the lack of seriousness in addressing the issue could affect human rights of Basotho and lead to the loss of economic opportunities which Lesotho had gained over the years from US development assistance programmes such as the multi-million-dollar Millennium Challenge Corporation (MCC).
…The AGOA law allows Lesotho to export textile products to the US duty-free, making them highly competitive. It was on the basis of AGOA that many Taiwanese and Chinese entrepreneurs came to Lesotho in the early 2000s to establish large textile factories that now employ about 45 000 Basotho. But those jobs are now at risk due to the government’s failure to address the US government’s concerns of official complicity in human trafficking. Without AGOA’s duty free status, Lesotho’s textile exports into the US cannot compete with those from well-established and competitive textile manufacturers like Vietnam, Bangladesh and China. Ms Gonzales further warned that Lesotho also risked losing out on health funding under the US President’s Emergency Plan for AIDS Relief (PEPFAR) which had helped the country make substantial strides in containing the deadly HIV/AIDS pandemic.
… “The TRC is concerned by the lack of seriousness on the part of the government of Lesotho to address issues of human trafficking,” the TRC said in its statement. “This is evidenced amongst others, by the lack of tangible investigations into alleged heinous crimes of human trafficking and constant polarisation of this sensitive human rights issue. “The TRC is concerned that whenever a political figure is suspected of a crime, the issue is immediately presented as a fight among political parties seeking to tarnish each other’s reputations and that way the matter is never actually investigated and prosecuted to its logical conclusion. “The current concerns on human trafficking are not an exception. Politicians in Lesotho have the unfounded position that institutions supporting human rights and democracy such the police should not be used to scrutinise their conduct. This unfortunate perception is aimed at discouraging and frustrating state institutions’ attempts to scrutinise and hold the executive accountable. The police, prosecution and judges must do their constitutional duties without any political interference,” the TRC said. Business and Human Rights Resource Centre
Greenwashing is in fashion: an eco-responsible wardrobe
We see it everywhere in all designers and all major brands, fashion becomes eco-responsible. It is today and still for a long time the key words of a good marketable collection. Ecology becomes the number one selling point before trend, cost and comfort.
We know that fashion is now one of the most polluting industries in the world, so brands and customers are adopting a more responsible and ecological fashion. If now as consumers we buy better, in less quantity and better quality, brands are innovating more and more every day to offer products in the air of time: trendy, practical, sustainable and eco-responsible.
If the big designers and the big brands start greenwashing by promising eco-responsible collections, or giving donations to associations for sustainable development, it is the small designers who are the stars of these innovations. Producing limited quantities every week or month, rebuilding new trendy pieces from existing products, using natural materials, the products sell out in few minutes, without unsold stock, and give customers the chance to have a unique or almost unique piece, produced locally and with very low ecological impact.
These designer brands like Réuni, who creates its pieces only with the customer, Stella Pardo, who produces its pieces by hand in France with natural materials, Noyco, who creates sustainable unisex collections with low environmental impact materials, or Kamad Reworked, who hunts for buttons on luxury pieces to make jewelry… we are in good hands to envision tomorrow’s fashion in a better world. Promostyl
Pepkor – further trading statement
As communicated in the Initial Trading Statement the increase in EPS and HEPS is attributed to strong trading performance in addition to the marked reduction in net debt and related finance costs during the period.
Pepkor is now able to provide a further trading statement and accordingly, shareholders and noteholders are hereby advised that a reasonable degree of certainty exists that the group’s statutory EPS and HEPS for the six months ended 31 March 2021 compared to the previous corresponding period are expected to fall within the ranges reflected in the table below.
Six months ended 31 March 2020 actual (cents), Six months ended 31 March 2021 expected range (cents) and Six months ended 31 March 2021 expected change (%)
Including discontinued operations
Both EPS and HEPS in the comparable period have been adjusted to reflect The Building Company as a discontinued operation.
Publication of results
Rex True – acquisition of stake in Telemedia
Shareholders are referred to the announcement released on the Stock Exchange News Service (“SENS”) on 13 November 2020 regarding the sale of shares agreement that the Company, together with African and Overseas Enterprises Ltd. (collectively, the “purchasers”) entered into with the Trustees for the time being of the Bretherick Family Trust, Peter Fairbank Bretherick, Ryan David Bretherick, and Stephen Mark Bretherick (the “sellers”) in terms of which Rex Trueform will acquire a 63.71% stake in Telemedia (Pty) Ltd. (“the Transaction”).
The Company advises that the condition precedent requiring the Independent Communications Authority of South Africa to provide its written consent to the Transaction remains outstanding. The implementation of the Transaction remains subject to the fulfilment, or waiver, as the case may be, of the condition precedent by an extended date of no later than Friday, 18 June 2021.
Rex Trueform remains confident that the condition precedent will be fulfilled imminently with the anticipated delay not expected to impact the implementation timeline as set out in the detailed SENS announcement. On fulfilment or waiver of the condition, a further announcement, together with the implementation timeline, will be communicated to Rex Trueform shareholders via SENS.
Did you know……..
Inventions that changed fashion once and for all
It’s hard to imagine that heels were worn exclusively by men up until the 17th century. In Medieval Europe, wooden clogs were popular because such shoes could handle dirt. In the 16th century, heeled boots were comfortable to wear for horse riders as they didn’t slide through the stirrups. Stiletto heels appeared only in the 20th century, and they are now a wardrobe necessity of every woman.
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