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Remarks by Hon Minister of Finance and Economic Development Dr. I. M. C. Chombo - ZNCC Policy Discussion On Special Economic Zones

Ladies and Gentlemen; It is my singular honour and privilege to address you all on this Discussion Forum on Special Economic Zones (SEZs), which is running under the topic Leveraging Special Economic Zones for Economic Growth

 

I am particularly pleased that the ZNCC has organised this important Discussion Forum at time when the Government is seized with instituting policies that attract both domestic and foreign direct investment (FDI), which is critical to stimulate value added exports, create employment and boost economic growth.

 

 

Over the years, the country has been receiving low levels of FDI inflows averaging less than US$400 million annually, against regional average levels of around US$800 million. The low foreign direct investment levels cannot sustain the envisaged average growth rates of 7%, enunciated in the Zim-Asset. Hence, the need to put in place attractive policies that attract investors.

 

 

Ladies and Gentlemen, following the enactment of the Special Economic Zones Act [Chapter 14:34] (the SEZ Act) on 31 October 2016 a number of programmes has been carried out to ensure the speed implementation of the SEZs policy initiative.

 

Institutional, Legal and Regulatory Framework

Government, recently appointed the Board of Directors for the Special Economic Zones Authority. The Board will be responsible for supervising the approval of SEZ licence applications and granting of all relevant permits within five days, while working with the Zimbabwe Investment Authority and local authorities, among other key stakeholders.

 

In addition, according to Sections 57 and 58 of the (SEZ) Act, the Board, through the Special Economic Zones Authority, will also be responsible for coming up with regulations and incentives in consultation with the responsible Minister as well as the Minister of Finance and Economic Development, which will apply and give effect to the SEZs as well as the setting up of a one stop investment centre in each SEZ to ensure the speedy approval of all applications, as well as the speedy clearance of any goods, equipment and services to be used in the SEZs. However, staff for the Special Economic Zones Authority staffed is yet to be hired, although this process is currently in progress.

 

Special Economic Zones Pilot Projects

Government has identified three SEZs pilot projects which are Bulawayo, Sunway City in Harare and the Victoria Falls. In Bulawayo, the target is to create an industrial economic zone covering the beef and leather industry, cotton and textile, steel and foundry as well as the rehabilitation of the National Railways of Zimbabwe.

 

In addition, a tourism hub is targeted for the corridor stretching from Victoria Falls-Gwayi–Binga–Kariba, whilst Victoria Falls is targeted as a financial hub and Sunway City as a technology hub.

 

 

However, there is ongoing debate among policy makers and stakeholders on whether to declare the whole country or towns, special economic zones due to the level of deindustrialization that took place over the years. Therefore, this platform provides an opportunity for us to debate on this important issue.

 

Fiscal Incentives

 Ladies and Gentlemen, following the enactment of the Special Economic Zones Act, the Ministry of Finance and Economic Development provided for fiscal incentives for Special Economic Zones through the 2017 National Budget.

 

The incentives were gazetted through the Finance Act of 2017 as well as Statutory Instrument 59 of 2017 on Customs and Excise (Special Economic Zones) (Rebate) Regulations, gazetted on 12th May, 2017. Some of the incentives are listed hereunder.

 

Corporate Tax

 Investors will be exempted for the first five years of operation and a corporate tax rate of 15% will be applicable thereafter.

 

Special Initial Allowance

 A special initial capital expenditure allowance at a rate of 50% of cost in the first year will be offered to the investors, thereafter a rate of 25% will be applied in the subsequent two years.

 

Employees’ Tax

 Specialised expatriate staff will be taxed at a flat rate of 15%.

Exemptions for Non-Residents:

  • Non-residents are exempted from the following taxes
  • Non-Residents Withholding Tax on Fees - Exemption on fees for services that are not locally available.
  • Non-Residents Withholding Tax on Royalties
  • Non-Residents Withholding Tax on Dividends

 

Customs Duty on Equipment and Raw Materials

Capital equipment for SEZs imported duty-free. In addition, inputs which include raw materials and intermediate products imported for use by companies set up in the SEZs will be imported duty-free. However, exemption will not apply where such raw materials are produced locally.

  

Non-Tax Incentives

 

Indigenisation Exemption

Ladies and Gentlemen, you may recall that there has been intense debate over the implementation of Indigenisation Act [Chapter 14:33]. This lack of policy scared away the country’s potential investors.

 

Therefore, in order to attract foreign investors in the SEZs, Government is taking a bold decision to exempt investors licensed under the SEZ Act, in terms of section 56 of the SEZ Act.

 

Labour Market Flexibility

 Special Economic Zones (SEZs) Act proposes to exempt businesses from strict labour lawsin order to court potential investors.

However, labour unions are arguing that the move would undermine workers’ rights. Therefore, I recommend for a tripartite negotiation forum to resolve these issues as a matter of urgency.

 

Ease of Doing Business Reforms

 Government is also seized with the implementation of ease of doing business reforms, with the objective of improving the country’s business environment and its competitiveness.

 

Study Tours

Ladies and Gentlemen, as I speak, a delegation of senior Government officials and captains of Industry are currently on a study tour in China to appreciate the how the SEZs have been implemented.

 

Study tours have also been done in countries such, India, Japan, Malaysia, Ethiopia, Tanzania, Nigeria, Kenya and Ghana among many others, as Government firmed its resolve to implement the SEZs.

 

Some of the key lessons learnt during the study tours include:

  • Need to incorporate Special Economic Zones in the integrated Master Plans of the various municipal and provincial authorities;
  • Need to prioritise SMEs participation in the SEZs value and supply chains;
  • SEZs, Policy Initiative must be implemented gradually, taking cognisant of the country’s comparative advantages and researching on global trends;
  • Provision of reliable key enabler infrastructure such as water, power, road, rail, air and water transportation, among others is key to the attraction of investments in SEZs;
  • There is need for a conducive doing business environment (one stop shop procedure) and stable policies to ensure investor confidence;
  • Create special linkages with tertiary and institutions of higher learning in terms of staff development and knowledge management is critical; anD
  • The terms and conditions of land use in the SEZs should not act as a disincentive to developers and users of SEZs.

The above lessons are critical in informing the Government on the Best Model SEZs to adopt.

 

Conclusion

Ladies and Gentlemen, lastly, I would like to assure you that Government is committed to the successful implementation of the Special Economic Zones, in order resuscitate our industries and to promote economic growth in the economy. I therefore, call upon potential investors, both foreign and domestic to seize this opportunity to invest in the Special Economic Zones.

 

I Thank You

20 OCTOBER 2017, CROWN PLAZA MONOMOTAPA, HOTEL HARARE

Ministry Financials


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