Industrial Development Zones – Logframe

The IDZ model entailed large upfront government spending on infrastructure; they have sizeable landholdings and exceptionally high operating costs, including high salaries and large staff numbers. However, government investment has not been matched by private sector interest and the IDZs attract few new manufacturers or exporters (with the exception of the pre-existing Tata Steel in Richards Bay IDZ). The IDZ model is premised on a high-risk approach that depends on their ability to attract large anchor clients. They provide basic infrastructure and build factories, warehouses, call-centres and the like on risk, which results in very high co-funding ratios. However, given their track record, the realism of this approach needs to be questioned. While this study does not review the approach to industrial policy, it provides interesting markers on managing for greater efficiency. The new SEZ policy needs to manage costs and risks better, with a clearer value proposition. Any upfront infrastructure expenditure should be scaled to match business interest. In the new SEZs, operating entities will no longer be permanent and new operating entities will be appointed on a five-year contract. This would require the performance of the new entities to be monitored very closely, with even tighter oversight than for IDZs. In addition, the co-funding regime has been replaced by investment incentives; while this moves the costs off the dti budget, the tax implications would need to be closely monitored and transparently reported.