SPECIAL ECONOMIC ZONES

 

THE LABOUR LAW PERSPECTIVES ON THE SPECIAL ECONOMIC ZONES (SEZs) BILL, (HB 15/2015): A DELICATE BALANCING EXERCISE

BY CEPHAS MAVHONDO*

 

A certain WhatsApp group was created and is called Labour Solutions Centre. I am a member thereof. The Group Administrator asked me to comment on an animal called Special Economic Zones visa vis our labour laws. After commenting on the aforementioned animal, I thought of coming up with this article for the benefit of the general members of the public.

 

 Zimbabwe is currently in the process of passing into law what is named Special Economic Zones Act. This process is at Bill stage and the Bill number is HB 15/2015. A number of questions are being asked. In the realm of labour, the biggest question is;- ‘Is the bill not an attack on labour rights of the employees?’ The other question is ‘If the answer to the first question, is in the affirmative, what can be done to make sure that the resultant law is a good law? I attempted to answer these and other questions in this article.

 

 

The preamble to the Bill states that:

“AN ACT to provide for the establishment of the Zimbabwe Special Economic Zones Authority and to provide for the functions thereof; to provide for the constitution and functions of the Special Economic Zones Board; to provide for the establishment of Special Economic Zones and the administration, control, regulatory measures and incentives in connection therewith; and to provide for matters incidental to or connected with the foregoing”

 

In essence, if the Bill is passed into law, there will be the Zimbabwe Special Economic Zones Authority (which will be a body corporate), Special Economic Zones Board (which shall be responsible for controlling and managing the Special Economic Zones Authority) and Special Economic Zones (that is, as defined in the Bill, any part of Zimbabwe declared in terms of section 20(1) of the Bill to be a special economic zone).

 

It is important to note that section 2 of the Bill defines ‘special economic zones’ as ‘any part of Zimbabwe declared in terms of section 20(1) (of the Bill) to be a special economic zone’. This definition only tells us that these zones are areas declared as special economic zones. It does not also clearly highlight to us what is economically special about these areas or zones.

 

SEZs can be generally defined as geographical zones which enjoy special regulatory and institutional incentives which distinguish them from the rest of the country. They normally provide an array of incentives for businesses which incentives range from tax incentives to regulatory incentives. SEZs are therefore designated geographical regions where enterprises can be established operating under special regulations; the zones are intended to enhance competitiveness and job creation and promote foreign direct investment in a country. SEZs are a way to encourage exports and foreign exchange earnings while addressing the massive unemployment rate, broadening the economic base and attracting development and new technologies. 

Special Economic Zones may be sector-specific or multi-product and the following categories of SEZs have been defined as per the South African SEZ Act No. 16 of 2014:

• "Industrial Development Zone" means a purpose built industrial estate that leverages domestic and foreign fixed direct investment in value-added and export-oriented manufacturing industries and services;
• "Free Port" means a duty free area adjacent to a port of entry where imported goods may be unloaded for value-adding activities within the Special Economic Zone for storage, repackaging or processing, subject to customs import procedures;
• "Free Trade Zone" means a duty free area offering storage and distribution facilities for value-adding activities within the Special Economic Zone for subsequent export;
• "Sector Development Zone" means a zone focused on the development of a specific sector or industry through the facilitation of general or specific industrial infrastructure, incentives, technical and business services primarily for the export market

Now that I have addressed what are SEZs, I think it is important to look at their history in Zimbabwe. At first, SEZs were established under the Income Tax Act; they were then called Export Processing Zones [EPZs]. Exporters who operated within them were given tax exemptions but otherwise they enjoyed, no special exemptions from the ordinary laws of Zimbabwe. Later on, in 1995, the Export Processing Zones Act (Chapter 14:07) (herein after called ‘the repealed law’) was promulgated and it established a parastatal authority responsible for establishing export processing zones, attracting investment to the zones and issuing licenses for businesses to operate within the zones. Section 56 of the repealed law stated, in almost the same manner the proposed section 56 of the Bill is drafted, that the Labour Relations Act [now the Labour Act] would not apply within export processing zones; but this section was repealed in December 2005. In 2007 the Export Processing Zones Act was repealed by the Zimbabwe Investment Authority Act, though industries that were licensed to operate in the zones continued to enjoy certain tax advantages.

It is believed that what may have reduced the effectiveness of the repealed law was that, any premises or place could be declared an export processing zone; even single rooms could be so declared. Virtually any manufacturing business which was export-oriented to at least some degree could get a license under the repealed law and many did. They did not have to move to a special zone to get the tax benefits accorded to them under the repealed law, but could remain where they were. Hence the repealed law did not lead to the establishment of separate zones where export businesses were concentrated: exporters were dispersed as before, but enjoyed tax exemptions. Nevertheless, the repealed law did encourage economic development as it is believed that projects in export processing zones had created more jobs in 2004.

The Bill is almost a mirror effect of the repealed law (Export Processing Zones Act (Chapter 14:07)).  Section 56 of the repealed law stated that:

“56 Chapter 28:01 not to apply

(1) The Labour Relations Act [Chapter 28:01] shall not apply in relation to licensed investors operating and employees employed in an export processing zone.

(2) The Authority may, in consultation with the Minister responsible for the administration of the Labour Relations Act [Chapter 28:01] provide rules for conditions of service, termination of service, dismissal from service and disciplinary proceedings that apply in export processing zones”.

 Section 56 of the Bill provides that;

1)    The Labour Act (Chapter 28:01) and the Indigenization and Economic Empowerment Act (Chapter 14:33) shall not apply in relation to licensed investors operating in a special economic zone.

 

2)    The Authority may, in consultation with the Minister responsible for the administration of the Labour Act (Chapter 28:01), provide rules for conditions of service, termination of service, dismissal from service and disciplinary proceedings that apply within every special economic zone.

 

It is clear that in terms of section 56 (1) of the Bill ‘licensed investors’ operating in Special Economic Zones will be exempted from the provisions of two key legislations; Indigenisation and Economic Empowerment Act and Labour Act.  It is worth noting that, unlike the repealed law, section 56 (1) of the Bill does not expressly cover the employees of the licensed investors. However, given the nature of the employer–employee relationship which is reciprocal, the exemption of the employer from the application of the proposed law means that the employee is also exempted.  This is also confirmed by the fact that the Bill proposes that the SEZ Authority, in consultation with the Minister responsible for administration of the Labour Act may provide rules for conditions of service, termination of contract, dismissal from service and disciplinary hearing in SEZs.

The Zimbabwe Congress of Trade Unions (ZCTU) has argued that exempting companies that will operate in SEZs from the Labour Act is ill-advised and will lead to workers being subjected to unfair treatment.

To alley any fears of abuse of labour rights in SEZs, I am of the view that the word “may” in section 56(2) of the Bill must be changed to “shall”. In line with that view, section 56(2) of the Bill ought to be clear that the rules in question shall apply in SEZs. This has the effect of making it mandatory that the SEZs Authority makes the necessary rules and the application of the rules in SEZs becomes mandatory.

If the suggested changes are not made, by virtue of the use of the word ‘may’ in section 56 (1) of the Bill, the Authority remains with a discretion whether to make the rules or not. This is really not good for the employers and employees as it may take long before an election to make the rules is made. It will be worse, if the election is not to make the rules. If the rules are not made, it means the laws of the jungle will apply between the employer and employee in SEZs. On that basis there is a possibility that the establishment of SEZs may lead to labour rights violations such as minimum wages, or standard working hours, or the right to strike, or to form trade unions.

Another point to note is that the exclusion of the application of the Labour Act in SEZs may be or may not be constitutional.  This is so because  section 86 of the Constitution of Zimbabwe authorizes the limitation of constitutional rights and freedoms. However, the limitation must be only in terms of a law of general application ( that is a law that applies to everybody and not only to certain subjects) and to the extent that the limitation is fair, reasonable, necessary and justifiable in a democratic society based on openness, justice, human dignity, equality and freedom, taking into account all relevant factors. There is a list of certain rights that the aforesaid section 86 makes immune from limitation but labour rights are not part of the list. This means labour rights provided for in section 65 of the Constitution can be limited in terms of section 86 as long as the limitation is in terms of a law of general application and to the extent that the limitation is fair, reasonable, necessary and justifiable in a democratic society based on openness, justice, human dignity, equality and freedom, taking into account all relevant factors. The only question I will leave open for another day is: Is the proposed limitation (section 56 of the Bill) in terms of a law of general application (that is a law that applies to everybody and not only to certain subjects) and to the extent that the limitation is fair, reasonable, necessary and justifiable in a democratic society based on openness, justice, human dignity, equality and freedom, taking into account all relevant factors?

Sections 65 of the Constitution which provides for labour rights states that;

65 Labour rights

(1) Every person has the right to fair and safe labour practices and standards and to be paid a fair and reasonable wage.

(2) Except for members of the security services, every person has the right to form and join trade unions and employee or employers’ organizations of their choice, and to participate in the lawful activities of those unions and organizations.

(3) Except for members of the security services, every employee has the right to participate in collective job action, including the right to strike, sit in, withdraw their labour and to take other similar concerted action, but a law may restrict the exercise of this right in order to maintain essential services.

(4) Every employee is entitled to just, equitable and satisfactory conditions of work.

(5) Except for members of the security services, every employee, employer, trade union, and employee or employer’s organisation has the right to—

(a) engage in collective bargaining;

(b) organize; and

(c) form and join federations of such unions and organizations.

(6) Women and men have a right to equal remuneration for similar work.

(7) Women employees have a right to fully paid maternity leave for a period of at least three months.

It is also important to look at the perceived advantages and disadvantages of SEZs especially in relation to the development of labour law.

 

As an advantage, labour conditions may be regulated less rigidly in SEZs through amendments of the labour laws. This may encourage businesses within SEZs to increase employment since the costs of shedding unproductive labour will be reduced. Also there may be development of labour laws since they will be repealed to match the needs of Special Economic Zone hence rapid economic growth in the country. Also this will eventually lead to the establishment of courts and other tribunals capable of enforcing rights of workers at the work place in the zones. The regulatory regime may be clear and secure. Investors will be able to settle their legal disputes quickly and fairly, and will be confident that the Government will protect their rights, particularly their property rights, and will not change the rules arbitrarily.

 

As a disadvantage, there may be a tendency for labour conditions to be regulated less rigidly to suit the demands of SEZs. As noted earlier, our SEZs Bill stated specifically that the Labour Act would not apply within Special Economic Zones. This may also lead to the unjustified exploitation of workers and unsafe conditions of work in the zones.

 

In a nut shell, the creation of SEZs and limiting labour rights in SEZs is a very delicate balancing exercise which requires serious considerations and the involvement of all the concerned stakeholders for the betterment of our country.

* Cephas Mavhondo is a labour lawyer and partner at Mhishi Legal Practice, Harare. For any feedback: cephasmavhondo@gmail.com. This article expresses the views of the writer. It is meant to goad a discussion on issues raised and it does not constitute legal advice to any reader thereof and the writer will not be responsible for any action or omission done based on this paper. For more information visit www.labourwatchzim.blogspot.com