SPECIAL ECONOMIC ZONES BILL 2013 PRESENTATION TO PORTFOLIO

SPECIAL ECONOMIC ZONES BILL, 2013 PRESENTATION TO PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY 4 JUNE 2013 1

INTRODUCTION • Presentation to provide the dti’s response to matters raised following public submissions on Special Economic Zones Bill • Representatives from the dti • Mr Tumelo Chipfupa (Deputy Director-General) • Mr Kaya Ngqaka (Chief Director: Infrastructure Investment Support Unit) • Mr Dumisani Sombinge (Director: Legal Services) • Ms Janice Jonathan (Director: SEZ Stakeholder Management) • Mr Jabulani Sithole (Deputy Director: SEZ Monitoring and Evaluation) 2

INTRODUCTION • Following the dti’s presentation in response to public submissions the PPC requested the dti to respond the following issues: • Composition and nature SEZ Advisory Board, term of office of members and removal of SEZ Advisory Board • Roles and functions of and the relationship between structures in Bill • Details on how the one-stop-shop will operate • Consultation process prior to the Minister making certain decisions • Details on the transitional arrangements 3

SEZ ADVISORY BOARD Nature of Board & Minister’s powers • Concerns raised that Board be empowered to make decisions and not be just advisory in nature • Confusion that Board an executive Board • the dti is of the view that Minister remains final decision making body to ensure that SEZ legislative framework achieves government’s industrial and economic development objectives 4

SEZ ADVISORY BOARD Composition of Board • Government departments and entities represented on the SEZ Advisory Board included because they interact with and impact on SEZs • Spread of representation across the public and private sector achieves the appropriate balance of skills required to: • perform the regulatory and advisory functions; and • promote intergovernmental co-operation and co-ordination around SEZs • the dti consulted with the various government departments and entities prior to including representatives as members of SEZ Advisory Board 5

SEZ ADVISORY BOARD Composition of Board • the dti agrees that clause 7 be amended to: • remove representation from DBSA and the Department of Economic Development • increase the number of independent persons in clause 7(2)(f) from three to five members 6

SEZ ADVISORY BOARD Seniority of members • SEZ Advisory Board must comprise senior members with the necessary knowledge, experience and expertise relevant for SEZs in order to ensure its efficient and effective functioning • Following provisions in Bill provide flexibility to assist Board to convene and conduct its meetings: • clause 7(7) provides that an alternate member can attend meeting on behalf of a member that is unable to attend a meeting; • clause 14(6) provides that a majority of members constitutes a quorum for meetings; and • clause 14(9)(a) permits members to participate in meetings via telephone or audio-visual technology 7

SEZ ADVISORY BOARD Term of office of members from government • Concern raised about whether a D-G will continue to serve as a member of the Board if she remains in position of D-G but exceeds the term of office as member of Board • the dti is of the view that it is unlikely that a person appointed as a D-G will serve in that position for longer than 11 years • However, the dti proposes that clause 7 be amended to provide that a D -G or, where appropriate, a DD-G must be appointed as member of SEZ Advisory Board 8

SEZ ADVISORY BOARD Dissolution of Board • It was proposed that the Minister be empowered to remove the entire Board at the same time, should the Board become dysfunctional • the dti submits that clause 19 of the Bill, providing for the dissolution of the Board, enables the Minister to remove the entire Board at the same time, after consultation and on any reasonable ground • It is therefore not necessary to amend the Bill 9

ROLES FUNCTIONS & RELATIONSHIP Structures or entities in Bill • Currently, Bill creates five structures or entities, each with its own functions & makes provision for issue of three types of approvals or permits: ENTITY CLAUSE ESTB ENTITY FUNCTIONS SEZ Advisory Board Clause 7 Clause 11 SEZ applicant/ licensee Clause 22 Clause 24 SEZ entity / Board Clause 24 Clauses 25, 26, 27, 30, 33 & 34 SEZ operator Clauses 30 & 31 Clause 34 SEZ business Clause 37 APPROVAL / PERMIT SEZ licence Clause 22(6)(b) Operator permit [Clause 31(4)] Approval from Minister 10

ROLES, FUNCTIONS & RELATIONSHIP Designation of SEZ • The Minister may, on application or on his own accord, designate a specified area as an SEZ [clauses 22 and 23 of Bill] • Following recent consultations with National Treasury on public submissions, the dti proposes that the Minister of Trade and Industry makes the decision to designate an area as an SEZ, after consultation with the Minister of Finance 11

ROLES, FUNCTIONS & RELATIONSHIP Application for designation and SEZ licensee • Only government & PPPs, acting alone or jointly, may apply to the Minister to designate an area as a SEZ • Applicant applying for designation of a specified area as an SEZ must meet criteria specified in clauses 22(2) and 22(3) of Bill • If the application is successful, the Minister must, after considering the recommendation of the SEZ Advisory Board, designate the specified area as an SEZ and issue the applicant with a licence for the SEZ [clause 22(6)] • Applicant is now the licensee of the SEZ and owns the SEZ licence 12

ROLES, FUNCTIONS & RELATIONSHIP SEZ entity • Upon designation of an area as an SEZ, licensee must establish an entity to manage the SEZ (“the SEZ entity”) • SEZ entity is a separate legal entity from the licensee. The SEZ entity can be a company or an entity established by legislation (a statutory body) • Licensee must ensure that the SEZ entity is established as a national or provincial business enterprise or a municipal entity, depending on the nature of the licensee [clause 24(1) of the Bill] 13

ROLES, FUNCTIONS & RELATIONSHIP SEZ entity • the dti agrees that the licensee must apply to National Treasury or a Provincial Treasury in order to establish SEZ entity as a national / provincial government business enterprise • the dti is of the view that clause 24 contemplates that the licensee will comply with the necessary PFMA procedures, including obtaining Treasury approval, when establishing a business enterprise • Therefore, it is not necessary to stipulate this in the Bill 14

ROLES, FUNCTIONS & RELATIONSHIP Special Economic Zone Board • Bill requires licensee to appoint a Special Economic Zone Board of the SEZ entity [clause 24(2)] • Special Economic Zone Board is responsible for efficient governance and management of the business affairs of the SEZ entity by: • developing and implementing the strategic plan for the SEZ entity [clause 25]; • compiling and submitting the SEZ entity’s business and financial plans to the Minister [clause 26] 15

ROLES, FUNCTIONS & RELATIONSHIP Special Economic Zone Board contd. . . • ensuring that SEZ entity complies with financial reporting requirements [clause 27] • appointing SEZ operator to perform functions in clause 34 on behalf of SEZ entity, subject to approval by Minister [clause 30] • concluding an agreement with SEZ operator appointed to develop, manage and operate SEZ entity [clause 33(1)] 16

ROLES, FUNCTIONS & RELATIONSHIP SEZ operator • Special Economic Zone Board (and not licensee as incorrectly recorded in clause 30) appoints the operator of the SEZ • Special Economic Zone Board must follow a fair, equitable, transparent, competitive and cost-effective procurement process when appointing SEZ operator (clause 30) • SEZ may only be developed, operated and managed by a person who holds a SEZ operator permit (clause 32) 17

ROLES, FUNCTIONS & RELATIONSHIP SEZ operator • Bill does not preclude an SEZ entity from also developing, managing and operating its own SEZ, provided that it obtains an operator permit in terms of clause 31 • However, the dti proposes that the Bill be amended to provide that only an SEZ entity established by a PPP licensee can develop, manage and operate its own SEZ, provided that it obtains an operator permit in terms of clause 31 • Person appointed by Special Economic Zone Board as SEZ operator must apply to the Minister to obtain SEZ operator permit in terms of prescribed criteria [clause 32(1)] 18

ROLES, FUNCTIONS & RELATIONSHIP SEZ operator • Special Economic Zone Board must conclude an agreement with SEZ operator and submit it to Minister when applying for an operator permit • Minister must be satisfied that the agreement adequately provides for duties and terms and conditions for the development, operation and management of SEZ • SEZ operator performs functions listed in clause 34 on behalf of SEZ entity & Special Economic Zone Board 19

ROLES, FUNCTIONS & RELATIONSHIP SEZ operator • SEZ operator must ensure that business located within SEZ is approved by Minister and achieves purpose of SEZs contemplated in clause 4 [clause 34(i)] • the dti proposes that Bill be amended to provide that: • Special Economic Zone Board, on recommendation of SEZ operator, decides whether a business can locate in an SEZ • SEZ operator & Special Economic Zone Board must apply the criteria contemplated in clause 23(5) and 37(2)(c) • business seeking to locate in an SEZ no longer required to obtain approval from Minister 20

ROLES, FUNCTIONS & RELATIONSHIP Business locating in SEZ • Consequently, clause 37 must be amended to require a business seeking to locate in an SEZ to apply to Special Economic Zone Board (as opposed Minister) for approval to locate in SEZ • When applying for approval, the business must— • provide information to show that it conducts a business or renders a service prescribed by Minister in clause 23(5) • indicate the extent to which the applicant’s business achieves the purpose of Special Economic Zones set out in clause 4 • comply with any other criteria that the Minister may prescribe 21

ROLES, FUNCTIONS & RELATIONSHIP Business locating in SEZ • Clause 23(5) requires Minister to prescribe the type of service and business that may be located in an SEZ in order to achieve the purpose of SEZs • the dti proposes that Bill be amended to provide that Minister must consult with Minister of Finance when prescribing: • type of service and business that may be located in an SEZ in terms of clause 23(5) • criteria in terms of clause 37(2)(c) 22

ROLES, FUNCTIONS & RELATIONSHIP Conclusion • Necessary to clarify the roles of and relationship between the structures in the Bill, as a result of the use of the word “licensee” instead of “Special Economic Zone Board” • the dti therefore proposes that clauses 11, 25, 26, 27, 28, 30, 31, 32, 33 and 34 be amended in order to replace the word “licensee” with the term “Special Economic Zone Board” • Flow diagram reflects the proposed amended SEZ framework and processes 23

ONE STOP SHOP • Concern raised that Bill does not detail one stop shop model that will apply to streamline approval processes and reduce red-tape for businesses seeking to locate in an SEZ • Clause 2(f) stipulates that it is an objective of Bill to provide for the establishment of a single point of contact or one stop shop • Clause 34(k) obliges the operator to facilitate a single point of contact or one stop shop that delivers the required government services to businesses • the dti is of the view that approach in Bill i. e. - to create a framework to establish a one stop shop and to oblige SEZ operator to facilitate the one stop shop function - is the appropriate approach 24

ONE STOP SHOP • the dti is in process of reviewing various one stop shop models applied in various countries. A discussion document on one stop shops is attached as Annexure “A” • Circumstances in a country and the resources available at a given point in time will impact on the way in which the one stop shop operates • If the model to be applied is stipulated in Bill - flexibility of the dti to adapt its approach as circumstances and access to resources change is removed, unless it embarks on a legislative amendment process 25

ONE STOP SHOP • In order to strengthen the one stop shop provisions in the Bill, the dti proposes that two clauses be inserted in Bill: • to require Minister to enter into implementation protocols in terms of the Intergovernmental Relations Framework Act, 2005 with various departments e. g. Environmental Affairs, Home Affairs, Labour and with municipalities and SARS in order to streamline approvals processes for SEZs • to require Minister to table a report before Parliament annually on the manner in which the one stop shop function is being implemented and how the one stop shop contributes to the ease of doing business in SEZs and attracts investors to SEZs 26

CONSULTATION BY MINISTER • Concern was raised that the Bill does not sufficiently provide for consultation processes, prior to the Minister making a decision to: • designate an area as an SEZ in terms of clauses 22 and 23 • take over the administration of an SEZ in terms of clause 28 • suspend or withdraw designation in terms of clause 29 27

CONSULTATION BY MINISTER Designating an area as an SEZ • the dti is of the view that Bill currently does not prohibit Minister from publishing his intention to designate an SEZ for public comment • However, the dti agrees that Bill can be amended to specifically provide that Minister must publish his intention to designate an area as an SEZ for public comment 28

CONSULTATION BY MINISTER Taking over the administration of an SEZ • Clause 28 empowers Minister to appoint an administrator to take over the administration or perform the functions of a Special Economic Zone Board, in specified circumstances • Minister makes decision after consultation with SEZ Advisory Board and Special Economic Zone Board and publishes the notice appointing the administrator in the Gazette • Minister may appoint administrator without consulting SEZ Advisory Board and Special Economic Zone Board if there is financial mismanagement and delay caused by the consultation would be detrimental to the functioning of that SEZ 29

CONSULTATION BY MINISTER Taking over the administration of an SEZ • It was proposed that clause 28 be amended to oblige Minister to consult with SEZ licensee, Special Economic Zone Board and SEZ operator, before making a decision • the dti is of the view that consultation with SEZ Advisory Board and Special Economic Zone Board is appropriate as: • SEZ Advisory Board reports to Minister on progress relating to the development of SEZs & assesses and reviews the success of SEZs in achieving the purpose referred to in clause 4 [clauses 11(g) and (j)]. • Special Economic Zone Board is responsible for the efficient governance and management of the business affairs of the SEZ 30

CONSULTATION BY MINISTER Taking over the administration of an SEZ • Administrator steps into the role of Special Economic Zone Board in order to perform the functions of Special Economic Zone Board • Relationship between Special Economic Zone Board, SEZ operator and businesses located in SEZ are not necessarily affected during administration • the dti is of the view that it is not necessary to amend Bill to oblige Minister to consult with SEZ operator and businesses located in SEZ, before making a decision to appoint an administrator 31

CONSULTATION BY MINISTER Suspend or withdraw designation • Clause 29 enables Minister to suspend or withdraw designation of an area as an SEZ which does not further government’s industrial development objectives, on such terms and conditions as Minister may determine • Minister makes decision after considering recommendation of SEZ Advisory Board and by notice in the Gazette • Clause 29(3): lawful activities of business located within SEZ is not affected by suspension or withdrawal of the designation if business— • has entered into a written agreement with operator; or • is situated in the custom controlled area of that SEZ 32

CONSULTATION BY MINISTER Suspend or withdraw designation • the dti proposes that clause 29 be amended to oblige Minister to consult with SEZ licensee, Special Economic Zone Board, SEZ operator and business located in the SEZ, before making a decision to suspend or withdraw designation • Amendment will give Special Economic Zone Board, SEZ operator and businesses located in SEZ opportunity to make representations to Minister before he decides whether to suspend or withdraw any designation 33

TRANSITIONAL ARRANGEMENTS • Concern was raised that Bill does not sufficiently address the impact of the new SEZ legislation on existing IDZs • Proposed that the transitional arrangements be amended to specify how current IDZ operators and businesses located in IDZs will be treated and how funding arrangements for IDZs will be affected • the dti agrees that the transitional arrangements should be amended to clarify arrangements relating to IDZ operator permits and businesses located in IDZs 34

TRANSITIONAL ARRANGEMENTS • the dti agrees that clause 38(3) of Bill be amended to provide that any IDZ operator permit issued under IDZ Regulations which is in force at the commencement of Act, remains in force and must be regarded as a SEZ operator permit issued under Act • the dti also agrees that Bill be amended to insert a new clause 38(4) to provide that any IDZ enterprise approved to locate in an IDZ under IDZ Regulations at the commencement of Bill, must be regarded as a business located in terms of clause of 37 • However, such a business will not automatically qualify for SEZ incentives - must meet the prescribed criteria for such incentives 35

THANK YOU QUESTIONS 36