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The Economic Potential of Small Towns in the Eastern Cape Midlands

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The Economic Potential of Small Towns in the Eastern Cape Midlands The Economic Potential of Small Towns in the Eastern Cape Midlands A thesis submitted in fu lfilment of the Requirements for the degree of MASTER OF ECONOMICS at RHODES UNIVERSITY by Kian Andrew Reynolds December 2008 " Acknowledgements I would like to thank the various people for their assistance with the work: Professor G. Antrobus, Department of Economics and Economic History Rhodes University who supervised the project. Professor E. Nel, Department of Geography Rhodes University who co-supervised the project. I acknowledge that all references are accurately recorded and, that unless othenvise stated, all work herein is my own. I also certify that this thesis has not been submitted for a degree at any other University. Kian Reynolds December 2008 The financial assistance received from the National Research Foundation for the purposes of the research is acknowledged. Opinions expressed and conclusions arrived at are that of the author and do not necessarily reflect the views taken by the National Research Foundation. ii Abstract Small town economic decline has been experienced in many countries across the globe and can be explained through Geographical Economics, particularly the New Economic Geography, which suggests that agglomeration occurs as a natural outcome of high transportation and transactional costs. Yet despite the economic rationale behind their decline it is not an economic inevitability and there is evidence of towns in the United States, New Zealand and Canada that have reversed their economic fortunes. [n South Africa approximately 5 million people live in the 500 small towns and many more live in their rural hinterlands where povelty levels are extremely high within a national context. Within this context the thesis examines the current economic status and potential growth prospects of small towns in the Eastern Cape Midlands in South Africa in order to identify critical growth dri vers within small town economies. Five small towns were selected for the study via means of a purposive sample and were subjected to two regional modelling techniques, namely Shift-Share Analysis and Economic Base Theory to detelmine their current economic trends and past growth patterns, while a Social Accounting Matrix was utilised to identify important sectoral linkages, potential avenues for growth and evident leakages within small town economies. The sampled towns experienced negative economic growth trends between 1996 and 200 I, the primary loss in employment being accounted for by regional economic changes as opposed to national or industrial trends. The decline was more severely felt in primary/industrial sectors of the economy; evidence was found that manufacturing activities declined in all of the centres, despite the industry growing nationally. The Social Accounting Matrix highlighted strong links between the agricultural and services sectors within the national economy. Thus, considering that agriculture was identified as the primary economic driver within the region and th e services sector the largest employer in all of the towns it is evident that the economic potential of the towns is to a certain extent linked to the success of agriculture in their hinterlands. Seven growth drivers, namely size, local economic development, existing markets, existing industries, infrastructure, municipal leadership and local entrepreneurs and were linked via III means of a scoring framework to the sampled towns' economic potential. Whilst the results of actually determining a towns economic potential are not definitive the study does provide useful insights about the impact and potential role played by these drivers. Linked to this scoring framework and to Cook's (1971) hi erarchy of places in the Eastern Cape Midlands four categories of towns were identified in the commercial falming areas and recommendations were made about appropriate developmental interventions at a municipal level, such as the need to retain local entrepreneurs and to invest in social amenities. Considering the evident need for development in rural areas the study provides critical insights into how to prioritise development strategies within small rural towns in commercial farming areas. In addition it would enable municipalities to critically reflect on their municipal Local Economic Development strategies and the relevance within the context of small towns. iv , ' "J I ' .. Contents Page Contents Page .......................................................................................................... v List of Tables .. , .... ,........ , ,.. , ...... ,., .... , ............................... ,........................... .. ......... viii List of Figures .......................................................................................................... x Chapter 1 Context and Aims of the Study ....................................................... 1 I, I Aims of the study and an overview of the methodology"""."""".""",,,,, 2 1.2 The Eastem Cape ."""""""""".""""""""".,, """",,.,,"""""",, .... ,,"""" 4 1.3 Survey of the Eastern Cape Midlands in the 1960s "",,",,",",""", .. ,,'''''' 12 1.4 Justification for study and the focus area "."."""""""".".,,""" ,, ... ,,""'" 13 1.5 Conclusion"",,,,,,,,,,,,,,,,,,,,, """"""""'"''''''''''''''''''''''''''''".".,,''''''''''''' 16 Chapter 2 Literature Review .......................................................................... 17 2. I Definition of a Small Town""""""""""""""""."""" "".".,,""",,"""'" I 7 2.2 International trends regarding Small Towns"""""""."""."""""""."",,, 18 2.3 Trends in South African Small Towns """""".""""."""".".".""""""", 19 2.4 Regional Economics and Location Theory""""""""".".""".""".".""." 22 2.4.1 Regional Economics and the New Economic Geography_ . ....... 22 2.4 .2 Location Theory.......... ....... ................ ....................................................... 26 2,5 Im plications for Development"".""""""""""""".""."""".""""""""" 29 2.5.1 Current policy and views on small town development ... ....................................... 30 2.5.2 The role of small towns in rural development .. ........... ) ( 2.S.3 Potential groy,1h opportunities .. .. ........ ) ) 2.5.4 Views regarding ass istance to Small towns .. .......................... ... 34 2,6 Conclusion. " ...... " .. " ...... " "", .. ,," ,.. ,,""'" "" ........... "." ,,, .. ,, ,,, .. ,, "" ..... ,.. 35 Chapter 3 An Economic History of five small Eastern Cape Towns .............. 36 3. 1 Origins of the towns "."""""""" ... """." .. " .... """."" .. "", .. """",, ... ,,,, .,, 36 3. 1.1 Agricultural backgrounds ....................................................... ... ............... ........... 36 ) , l.2 Military towns ........ ....................... " ...... ) 7 ) .U Church Towns ... ...... ) 8 3.2 Socio-economic characteristics ... ............................................................ 39 3.3 Past Economic Indicators ......... " ...... " ... " ......" "" .. "."." ................ ,, ....... 44 3.4 Conclusion ", ...... "'" .. ,,, ." .... "." .... , .. ,,, .. ,' ,.. ,.. " " .. " ... " ...... " .. ..... ". '" ,.. , ,... 49 v Chapter 4 Analytical Methodology............................. .................................... 50 4.1 Regional Economic Models .................................................................... 50 4.1.1 Economic Base Theory ... .. ................................. 50 4.1.2 Shift-Share Analysis ... ... ............ 54 4.1.3 Input-Output Models .. .... 56 4.1 .4 Gravity Models ... ... .. ....... 58 4.1.5 Econometric Models . .......... ................................................ ... ......... .............. ... 59 4.1.6 Social Accounting Matrixes (SAMs).... ............................... 60 4.1.7 Computable Generated Equilibriwn (CGE) .. .......................... .. ... .. ...... ........... 63 4.2 Models applicable for Small Towns in South Africa ............................... 64 4.3 Conclusion ............................................................................................. 65 Chapter 5 Analysis of towns using Shift-Share Analysis, Economic Base Theory and a Social Accounting Matrix ............................................................................ 66 5.1 Data sets utilised: 1996 and 200 I censuses ............................................. 66 5.2 General Overview of the Towns' Economic Environment ...................... 68 5.3 Shift-Sbare Analysis .................................................... ........................... 69 5.4 Economic Base Theory and Location Quotient Analysis ............. ............ 81 5.5 Social Accounting Matrix ....................................................................... 90 5.6 Conclusion .......................................... .......................................... ......... 93 Chapter 6 Local economic development and private entrepreneurial activities94 6.1 Structured Interviews ............................................................................. 94 6.2 Local Economic Development (LED) ..................................................... 97 6.1 .1 LED Studies ......................................................................... ... ..... ..... ........ .. ..... .... 97 6.1.2 LED goals and strategies within the towns .. .. 100 6.3 Private business and entrepreneurial activities ...................................... 109 6. 3.1 Cradock .. ...... ........ 109 6.3 .2 Bedford .. ... ..... ... 11 0 6.3.3 Somerset·East and Pearston .. .... 111 6.3.4 Grahamstown .. .112 6.4
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