The Developmental Significance of Special Economic Zones in the Global South and the Case of the Dirty Energy Musina-Makhado Zone (MMSEZ).

Policy Brief,
Hazel Shirinda and Lisa Thompson
Part 1 – draftMarch 2021

Introduction

Over the last decade, Special Economic Zones have been promoted by the United Nations Development Programme (UNDP), United Nations Conference on Trade and Development (UNCTAD) and the World Bank as effective mechanisms for ensuring growth across the developing world.

The SEZ model has gained popularity as a result of China’s use of the Zones to ensure rapid industrialization and diversification of manufactured products. The first SEZ in China is the Shenzhen SEZ, now a thriving smart city used as a example of what SEZs can add to Global South Development.

China’s developmental influence has been expanded by a number of forms of institutional cooperation. These include the Forum on China-Africa Cooperation (FOCAC) and the BRICS bloc (Brazil Russia-China-India-South Africa). China has championed the notion of the Global South.

The international institutional term Global South refers to a new configuration of global geostrategic power, led by China. The rise of the alignment of states that refer to themselves as part of Global South is linked to China’s economic leadership role in the world economy, tactically as part of the geostrategic (as opposed to geographic) South, so as to balance the power of the United States and Europe (the Global North).

Inspired by the Chinese use of SEZs, South Africa has put Special Economic Zones at the forefront of our National Development Plan. The need for industrial development combined with large scale infrastructural upgrading and expansion is seen as even more critical after the economic devastation caused by COVID 19.

Linking Development to Special Economic Zones

Most developing states have undiversified economies. This means they lack industrialization and diversified manufacturing economic bases. While the aim is to ensure long term sustainable growth, this goal is thwarted by a reliance on primary product exports.

Special Economic Zones are designed to attract foreign and local investment and ensure the processing, or beneficiation, of raw materials. This is called the creation of value chains.

China has championed SEZs ability to develop diverse value chains that redefine growth and development in the Global South so as to free these states of their colonial and imperial  economic legacies.

African states in particular tend to export primary products or commodities in their raw state, thus with no added value.

This in turn enforces lacklustre growth as not only are primary products and commodities volatile in terms of economic value, a reliance on them means that developing state economies have to use limited economic resources to import manufactured goods that cost much more.

How do SEZs attract Foreign Direct Investment (FDI)?

The zones are geographically distinct areas of land set aside for large scale industrial and manufacturing development. To attract large scale investment, certain tax breaks and incentives are put in place by government.

In 2014, South Africa introduced a new, Special Economic Zones Act with huge incentives for investment. These include slashed corporate tax, from 28% (now 27) to 15%, customs and VAT concessions.

The SEZs are also subsidized by government in terms of water and energy supply tariffs.

SEZ Labour Controls

SEZs also have Special Regulations to control labour. Strikes are not permitted within SEZs and labour must also sign contracts with the both Operator and investing companies to ensure that there are no disruptions to production. This restricts labour from being able to claim economic rights if violated. Despite these controls, South African labour organisations remain broadly in favour of SEZs as a way to create large scale employment. The largest Union in South Africa, COSATU, is broadly supportive of the Zones.

Yet, SEZs have been criticized of being both neglecting environmental mitigation effects and of exploiting cheap labour to make corporate profits, especially in China and in Chinese run Zones. The is a case in point.

Groundwater contamination site, Chambishi, Zambia – www.tearlin.mil

The creation of local to global value chains and the development of technological innovation in line with the 4th Industrial Revolution are key to the popularity of SEZs in the Global South and technological innovation is a key feature of the MMSEZ, according to the EIA..

In South Africa there has been a proliferation of SEZs since 2014, 11 to date.

Of these, the largest developmental initiative in South Africa for the next 30 years is what is known as the Musina Makhado SEZ, or MMSEZ, in Limpopo province. The Zone is linked to other large scale development projects including three of South Africa’s Strategic Integrated Projects (SIPs) namely, SIP 1, 2 and 17.

In brief, these SIPs are described as follows:

SIP 1: Unlocking the Northern mineral belt with Waterberg as catalyst

SIP 2: Durban-Free State-Gauteng logistics and industrial corridor

Sip 17: Regional integration for African development and cooperation

The MMSEZ SOC: Massive Pledges of FDI

The MMSEZ was designated in 2017. In the same year, the Department of Trade and Industry appointed the Chinese operator, Shenzhen Hoi Mor. This state-owned company derives from the Shenzhen Zone in China that is emulated so widely. In the EIA and other official documents the company is now referred to as the MMSEZ SOC, or State-Owned Company. The SOC will have full control over the Zone and will liaise directly with communities, according the first high level Environmental Impact Assessment. This is problematic for a number of reasons outlined below.

The MMSEZ SOCs Corporate Executive Officer in the infamous Yat Hoi Ning. In 2017, the Zimbabwean government issued a warrant for Ning’s arrest on charges of company fraud. This does not bode well in terms of future government oversight. As the diagram above clearly shows, Ning’s SOC will be in charge of all operations and the EIA and Master Operational Plan make clear that security and labour within the SEZ will be tightly controlled. It seems that government is prepared to turn a blind eye as the MMSEZ SOC has pledged US $3.8 billion, or R55 billion to its operational success.

Figures released in the SEZs Operational Master Plan of August 2020 state a further US $27.5 billion, or R400 billion has been secured for private company investments from China.

The Toxic Zone Unpacked:

The MMSEZ will contain:

  • a 3300 megawatt coal coking plant,
  • a coal washing plant,
  • thermal, steel, vanadium and other metallurgically extractive industries.

Most of the proposed industrial plants are red flag carbon dioxide emitters.

This means the MMSEZ is a fundamentally dirty energy megaproject to be established in the ecologically sensitive and pristine Vhembe Biosphere. Because it has a foreign SOC in charge of its operation, oversight of its operations will be extremely difficult.

The proposed SEZ runs against South Africa’s Just Transition commitments to move away from coal fired energy. Yet, it is being endorsed as a way to kickstart development in Limpopo Province, and as a way to link South and southern Africa to China’s ambitious Belt and Road Initiative.

The EIA Process

The first high level Environmental Impact Assessment or EIA was released for public comment in September 2020. The consulting company, Delta BEC, together with the Limpopo Economic Development Agency, LEDA, then rushed through a series of public participation processes (PPPs) most of which occurred during Stage 3 lockdown. The final EIA was submitted to Limpopo Economic Development, Environment and Tourism provincial body (LEDET) in February 2021.

Strengths and Weaknesses of SEZs

The EIA shows many of the weaknesses of SEZs and megaprojects throughout the developing world in that there is an unproven assumed correlation between economic growth, local job creation and long-term sustainable development.

Yet EIA presents ambitious, if disturbingly vague and confusing statements about offsetting or mitigating the negative environmental impacts.

Of course, any SEZ can offset negative impacts. For example, clean energy like solar can be used, and the use of ecologically sustainable smart technology can also go a long way to ensure green industrialization.

Equally, if employment creation does favour local employment creation, the SEZ could benefit both the local communities, and the national economy.

Unfortunately, the history of SEZs shows that long term local job creation is often not forthcoming. In this MMSEZ, despite promises by the MMSOC that most employment will be for locals, this is unlikely to be the case. Most long-term employment will need to be specialized and highly skilled, even in the start-up phase. There is insufficient time to upskill locals for these positions as this would take decades.

The Environmental Impact Assessment (EIA) of the Musina Makhado Special Economic Zone (SEZ) is touted by the government to be the new “regional economic epicentre” much like other mega-projects in the Global South. – Mail & Guardian

Because of the huge investment promises, the MMSEZ is likely to go ahead. The Limpopo Economic Development, Environment and Tourism Department (LEDET) has referred the EIA back to Delta BEC for more public participation and further details on for example water provision. These are likely to be temporary delays designed to win complete confidence in the MMSEZs success, particularly through local communities endorsing the Zone in terms of job creation.

Further Problematic Impacts to the MMSEZ are:

  • The aggravation of acute water scarcity: the Zone is projected to require an annual 80 million m3 of water – the EIA gives no clear plans as to where the water will come from.
  • The production of huge amounts of toxic waste: slag, sludge and other toxic substances to be disposed of, have no clear waste disposal strategy in the current EIA.
  • A negative impact on vulnerable rural farmers, especially women: Initial water needs from the MMSEZ are likely to be drawn from the Thuli Karoo Aquifer, thus aggravating long term water scarcity and the livelihoods of poorer farmers.
  • The destruction of indigenous flora and fauna: although the EIA mentions the relocation of both, again there is no clear strategy. It will be impossible to replant the 150 hectares of baobab trees on the MMSEZ site.
  • A massive contribution to climate change: the EIA mentions that smelting and refining processes cause long term damage to the environment and the health of communities, but does not have a clear offset strategy.

The MMSEZ in its current toxic zone configuration, could potentially negatively impact development in South and Southern Africa for decades to come. While it ambitiously links South Africa firmly into the Chinese Belt and Road Initiative, there is a chronic lack of public disclosure on the nature of the Chinese investments and loans being made in the Zones establishment. Kenya’s Mombasa to Nairobi rail route has severely indebted the government, and similarly Ethiopia is one of China’s biggest debtors due the Djibouti to Addis Ababa rail route. These links all form part of the large BRI plan as the maps drawn from the MMSEZ EIA clearly show (see below).

During the EIA process MACUA, Earthlife and other organisations have emphasized that communities in the Limpopo and the general public in South Africa have the right to know about the MMSEZ. Communities in the area need to also participate in public participatory fora with free, prior and informed consent. This right is entrenched in the United Nations declaration on the Rights of Indigenous Peoples (UNDRIP) and is frequently referred to by the United Nations Department on Economic and Social Affairs (ECOSOC) 

Fortunately, in addition to LEDETs extension of the EIA PPP process, more EIAs are needed for each of the dirty energy industries of the MMSEZ. Robust Public Participation and activist research may well be able to positively influence the establishment of the MMSEZ,

The proposed geostrategic importance of the MMSEZ to China’s Belt and Road Initiative (to be discussed in future policy briefs), is very high. Public pressure for oversight and accountability could well allow for the revision of the MMSEZ Master Plan to bring it into line with sustainable development best practice.

Musina-Makhado linkages with other transport corridors in SADC – Economic Analysis Assessment – DELTA BEC

A special thank you to the following organisations for their insights and information

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