Workers Depend on South Africa's Stalled Zone Reform; 28,821 Jobs at Stake

South Africa’s 28,821 workers employed across 224 operational investments in the country’s 13 Special Economic Zones represent real livelihoods. Behind each job is a person who depends on the zone working as advertised. Yet the programme that sustains those jobs has spent decades in a peculiar policy limbo, adjusting individual rules while leaving deeper problems untouched.

The latest adjustment follows a familiar pattern. National Treasury and SARS are proposing to change one of the more peculiar conditions attached to the headline attraction of the zones: the preferential 15% corporate tax rate, compared with the normal company rate of 27%, under Section 12R. The condition in question was meant to stop tax avoidance. A company could lose the special SEZ tax rate if more than 20% of its deductible spending or income came from transactions with a related South African company or permanent establishment. In other words, if one part of a company sat inside an SEZ and another outside, the company could lose the entire tax benefit.

Additional reference context is available at https://www.financialmail.businessday.co.za/opinion/2026-08-24-soz-sez-why-south-africa-needs-to-do-a-shenzhen-with-its-special-economic-zones/.

The rule was very blunt. It did not matter whether the transactions were genuine or priced fairly. Once a company crossed the 20% threshold, the benefit vanished. This does not fit the way many modern businesses operate. A manufacturer might have its factory inside an SEZ while its marketing, purchasing, IT or distribution operations sit elsewhere. Large multinational companies routinely trade goods and services among networks of related entities.

Treasury now accepts that the rule is too rigid. Its 2026 Budget Review says it can discourage both existing SEZ companies and new investors that want to make an SEZ part of a wider supply chain. The proposed fix is simpler: companies will be allowed to trade freely with related businesses, as long as the prices they charge are similar to what unrelated companies would charge each other. That is clearly an improvement. It also raises an obvious question: why wasn’t it designed this way from the start?

Meanwhile, the numbers behind the programme tell a sobering story. Between 2016 and 2024, national and provincial government funding and incentives associated with the programme amounted to around R24.2 billion, while the zones generated an estimated R14.8 billion in corporate and personal income taxes and municipal rates, according to a recent World Bank review. That is about 61 cents of measurable public revenue for every rand spent over the period. Revenues technically exceeded expenditure only in 2024, producing a surplus of R510 million. Not a disaster. But after decades of policy effort, it is hardly Shenzhen, the astoundingly successful special economic zone that was once a sleepy Chinese fishing village. Designated an SEZ in 1979, Shenzhen is now China’s number one mainland port, home to more than 17 million people, with an economy worth $560 billion a year.

Back in South Africa, of the 13 SEZs, only six have been approved by the finance minister for the preferential company-tax dispensation. The dtic told Parliament this year that only about 30 of the 224 operating companies have benefited from the tax incentives because the qualification requirements are so restrictive. The most advertised tax benefit of the programme applies in fewer than half the zones and, in practice, to a tiny fraction of the companies operating in them. That is not an incentive programme. It is more like an obstacle course with a prize at the end.

There is another pressure bearing down on those 28,821 workers and the businesses employing them. Under current legislation, the principal Section 12R incentive disappears for years of assessment beginning on or after January 1, 2031. Persuading an international manufacturer to build a factory whose economic life might span 20 or 30 years by offering a tax rate that expires in little more than four years is a hard sell. The World Bank has recommended extending the 15% rate to all designated SEZs. Trade and industry minister Parks Tau has said the department is considering that recommendation, along with proposals for more private-sector industrial parks, better municipal service agreements and formal intervention in chronically underperforming zones.

By contrast, the zones that do work offer a clear lesson. Tshwane Automotive succeeded because Ford and its supplier network provided an economic reason for the zone to exist before government started worrying about its theoretical virtues. Coega has a port and an established industrial ecosystem. Dube has an airport and logistics infrastructure. East London has a deep automotive base. Their lesson is almost embarrassingly simple: an SEZ works best when government identifies an existing commercial opportunity and removes obstacles around it. It works far less well when government creates a zone first and goes looking for an economic rationale afterward.

Part of the difficulty is structural. One department designates the zone. Another must approve it for tax purposes. SARS administers the tax rules. Provinces frequently own or operate the zone. Municipalities supply water, electricity and other services. The dtic supplies incentives and infrastructure money. Development-finance institutions such as the IDC and DBSA may become involved in particular projects. Investors remain subject to ordinary South African labour, environmental and company law, and to the broader B-BBEE environment surrounding government incentives and procurement. A Dubai free zone has historically offered foreign investors 100% ownership, easy profit repatriation, simplified licensing, customs advantages and, in some circumstances, a substantially different legal and regulatory environment. South Africa’s proposition is more modest: a serviced industrial park where most ordinary rules continue to apply, but some things are made cheaper and some approvals easier.

The fundamental question, as one analysis notes at financialmail.businessday.co.za/opinion/2026-08-24-soz-sez-why-south-africa-needs-to-do-a-shenzhen-with-its-special-economic-zones/, remains unanswered: what precisely is supposed to be special about doing business there? For the workers already inside the zones, that question is not abstract. Whether the programme ever fulfils its promise depends on whether government can answer it before the 2031 deadline makes the question moot.