The R4.8-billion, 1 000 ha Maluti-a-Phofung special economic zone (SEZ) being built near Harrismith at the foothills of the northern Drakensberg mountains (also known as the Maluti mountains) will provide road and rail logistics and handling facilities for the Gauteng–Durban port corridor and link it to the Bloemfontein–Cape Town corridor.

The main industries the SEZ will serve are agriculture, agroprocessing, automotive and logistics, and will include container terminal and car terminal facilities.

The SEZ will function as a back-of-port operation to ease congestion at the Durban port and will provide South African customs functions and facilities for imported goods and export goods, including goods moving north into Southern African countries.

“The primary focus of the SEZ once it begins operating next year will be to act as a logistics hub to take advantage of its strategic location on the Durban–Reef corridor and as a link to the Bloemfontein–Cape Town corridor,” notes Department of Trade and Industry SEZ and economic transformation acting deputy director-general Alfred Tau.

It will also provide aggregated bulk rail logistics for agricultural produce between Bloemfontein and Harrismith, in the Free State, while bulk freight rail services will extend to Newcastle, in KwaZulu-Natal.

The SEZ will incorporate an intermodal rail and road facility, with specialist transfer infrastructure and associated storage facilities, including cold-chain storage facilities. There is more land available in the vicinity that could potentially accommodate expansion, if required, he says.

“Its existing road and rail links position the site ideally to service goods flowing to and from the Durban port and to bolster the existing logistics networks. The SEZ will relieve some of the pressure on the port by offering alternative storage, staging, packaging and agglomeration services.

“The confluence of major road and rail systems and its position above Van Reenen’s Pass also enable it to offer an intermodal transfer point that could relieve some of the road congestion on this route,” he explains.

Further, there has also been interest from light manufacturers of medical equipment, clothing and pharmaceuticals. The long-term objective of the SEZ is to use this initial interest to attract more value- adding activities and companies by offering a convenient processing hub for businesses looking to serve the domestic and international markets, notes Tau.

“It is envisaged that activities will include final assembly and customisation of imported products, and light manufacturing of products destined for the export market, as well as eventually including higher-value processing and manufacturing plants, such as starch production, pharmaceuticals and medical-equipment manufacturing plants,” he says.

The SEZ’s potential to realise large socio- economic benefits in a depressed region of the economy influenced the decision to develop it; however, the manner in which the zone develops over time will be determined by the level and nature of investor interest, adds Tau.

Agricultural Accelerator
The hub will draw in agricultural produce from the region and serve as a base for agroprocessing, food processing and light manufacturing, as well as for the consolidation and export of such goods, highlights Maluti-a-Phofung project director Mzwakhe Shoba.

He adds that the SEZ is currently focused on strengthening and leveraging rail and the north–south road corridor, with the eventual inclusion of the Harrismith aerodrome as an extension of the SEZ, mainly to move higher- value perishable food goods.

“The agricultural base [of the region] can benefit from a hub-and-spoke concept, where produce is collected for further processing or transportation at the hub,” says Tau.

Small farmers and niche farmers near the railways will benefit from the SEZ, as it will enable them to easily move their goods, he notes, adding that the produce will be sorted and consolidated in the SEZ, while buyers can use the customs offices to quickly obtain all the relevant permits for export.

“The SEZ will now incorporate the Harrismith Logistics Hub concept, to make Harrismith a central accumulation point for agricultural produce to be transported by rail, into its plans,” states Tau.

Further, the hub will also have a fresh produce park, which will include a Halaal food park, abattoirs and organic produce companies.

The establishment of light processing activities that draw on the raw agricultural materials available in KwaZulu-Natal will also be incentivised to develop higher-value processing and production in the SEZ as the development and growth of the zone progresses, he notes.

“The agglomeration of several value chains will provide an opportunity for local entrepreneurs to integrate into these emerging value chains and expand their businesses,” states Tau.

Rail Freight
Rail logistics is central to the Maluti-a-Phofung hub’s capabilities. Improving and using the railway network through the hub will also provide long-term funding for the maintenance and expansion of the network in KwaZulu-Natal, the Free State and Gauteng. State-owned railway operator Transnet is consequently a key partner in the Maluti-a-Phofung SEZ project, says Shoba.

The project is a key test-bed for government’s road-to-rail initiatives aimed at reducing costs of road freight and reinvigorating the rail industry.

He says the narrow-gauge rail lines criss- crossing the Free State and KwaZulu-Natal are mainly underused, and the hub will aim to provide its services and rail logistics to broader industries in these provinces, including the clothing and textile industries near the Newcastle area.

“Transnet Freight Rail has played a major role by considering the rail use potential and scoping the requirements for the intermodal facility; it will continue to be one of the key stakeholders in the zone development. Now that the decision to designate [the zone as an SEZ] has been approved by Cabinet, the process of engaging with Transnet and co-designing the required facilities is expected to intensify,” says Tau.

The industrial development zone model has proven highly successful in South Africa, but the cost of logistics in the country hampers the competitiveness of industries. Therefore, the Maluti-a-Phofung SEZ aims to reduce logistics costs and enable companies to gain efficiencies, grow and expand and, in so doing, help develop the economies of the provinces, says Shoba.

The aim is to have three freight trains a day between Durban and Johannesburg initially and to offer the 24-hour rail services as a complementary addition to the road network.

Incentives and Services
The Maluti-a-Phofung SEZ will provide all the relevant services for companies in the SEZ, including databases of local suppliers and black-owned businesses in the area that can form part of supply chains.

“The zone has been registered as an SEZ so that broader incentives can be offered to participants outside of export-orientated industries, which the IDZ regulations incentivise,” says Shoba.

Under the current SEZ Act No 16 of 2014, companies located within the South African Revenue Service customs-controlled area of the SEZ are potentially eligible for a preferential 15% corporate tax rate for ten years, as well as a building allowance tax relief, employment tax relief for employees earning below R60 000 a year, and the 12i tax allowance for the development of greenfield operations.

The Maluti-a-Phofung municipality has incorporated the project into its planning scenarios, with prospective investors having shown a keen interest to hire and train people from the local community.

“The SEZ will contribute to the development of the region by catalysing skills development and creating opportunities to integrate small enterprises into various industry value chains. This will create opportunities for entrepreneurs and labour in the area,” says Tau.

The recent designation of the hub as an SEZ will lead to the skills audit and the design of specific training interventions being revised to ensure that the local community can benefit directly from the development, he adds.

The Maluti-a-Phofung SEZ is expected to develop over 20 to 30 years, with an expected 29 000 employment opportunities emerging over a ten-year period, if all elements of the plan received sufficient business interest and opportunities are realised.

“The SEZ aims to improve business infrastructure for the benefit of all industries in the region. Currently, the interest that has emerged from investors does not compete with any existing business interests and the SEZ intends to host new industries that will use people from the Maluti-a-Phofung community, sustainably aiding the development of the region and its people,” he concludes.