Mthente helps find opportunities for SMMEs in SEZs

The Department of Small Business Development (DSBD) appointed Mthente to conduct a study on the “Identification of Opportunities for SMMEs and Co-operatives in Strategic Value Chains within Special Economic Zones”. The premise of the DSBD study is to improve the integration of SMMEs and co-operatives into global value chains, using SEZs as the vehicle for these entities to access global value chains. Based on this premise, the focal point of the study is identifying specific modalities and mechanisms which increase the number of SMMEs and co-operatives participating either directly or indirectly in SEZs in South Africa.

Special Economic Zones (SEZs) are geographically designated areas set aside for specifically targeted economic activities through incentives and infrastructure support, with business and trade laws different to the rest of the country. SEZs exist globally, with an estimate of 5 383 throughout the world. South Africa has 10 SEZs, in varying stages of maturity:

  • Coega (Eastern Cape)
  • East London (Eastern Cape)
  • Richards Bay (KZN)
  • Dube TradePort (KZN)    
  • Saldanha Bay (Western Cape)    
  • OR Tambo (Gauteng)
  • Maluti-A-Phofung (Free State) 
  • Musina / Makhado (Limpopo)
  • Atlantis (Western Cape) 
  • Nkomazi (Mpumalanga)

If South Africa is to build on the successes of the recent SA Investment Conference, these SEZs will play a critical role. With the country no longer the investment choice it once was, the incentives provided by SEZs are an increasingly powerful factor in luring foreign direct investment. 

When most of South Africa’s SEZs were formed, they were classified as Industrial Development Zones (IDZ) that focused on attracting higher value-added, large-scale manufacturers who produced goods for the export market. Given the legacy of most SEZs, they are geared to attract high-level tenants targeting export markets, which is difficult to consolidate with the Department of Small Business Development’s developmental agenda. This does not imply that SEZs cannot be agents for socio-economic development (in fact, the study found that SEZs have made progress in developing programmes to support small businesses with little guidance from other government departments), but policymakers need to acknowledge that SEZs were originally not designed for supporting Local Economic Development (LED).

As such, we our study looked at how more Small, Medium and Micro Enterprises (SMMEs) and cooperatives (which are referred to as small businesses) can get involved in SEZs either directly, as tenants, through incubation or as contractors; or indirectly through being a supplier to an SEZ’s tenants. This issue is primarily explored by identifying bottlenecks and barriers across South Africa’s SEZs that make it difficult for SMMEs and co-operatives to participate in SEZ -related opportunities and suggesting recommendations to solve them.

The study identified six strategic areas for interventions. First, ensuring more effective government coordination at the policy and programmatic levels. Second, creating a more balanced commercial-developmental mandate for SEZs. Third, building up a critical mass of the “right” SEZ tenants. which also includes achieving a diversified portfolio of tenants in an SEZ required to support targeted industry clusters. Fourth, getting more small businesses “ready” for SEZ-related opportunities. Fifth, creating business conditions that motivate SEZ tenants to form long-term relationships with small businesses. Lastly, introducing a more focused “match-making” activities between small businesses and SEZ tenants.

SEZs play an important economic role for multinational companies and the relevant global value chains. Government’s challenge is to facilitate the spill-over of these economic gains to South African SMMEs and the broader communities where the SEZs are situated.