A SITUATIONAL ANALYSIS ON TRADE AND INVESTMENT INITIATIVES AT LOCAL GOVERNMENT LEVEL IN SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

CONTENTS ACKNOWLEDGEMENTS...... 5 2.4 Results of the Trade and Investment Face-to-Face ACRONYMS...... 6 Interviews in Municipalities...... 32

CHAPTER 1: Background, Aim and Methodology...... 10 2.4.1 NMB Metropolitan Municipality...... 32 1.1 Introduction...... 10 2.4.2 Rustenburg Municipality – Secondary City...... 33 1.2 Aim...... 11 2.4.3 King Sabata Dalindyebo (KSD) Municipality – Secondary City and Small Town 1.3 Research Methodology...... 12 Regeneration Site...... 34 1.4 Creating an Understanding of the Local, Foreign 2.4.4 uMzimkhulu Municipality – Rural Poverty Trade and Investment Landscape at an International, Presidential Node...... 35 Regional, National and Local Government Level...... 12 2.4.5 Zululand Municipality – Tural Presidential 1.4.1 Background and Global Economic Outlook...... 13 Poverty Node...... 36 1.4.2 Trends in International and Regional Trade and 2.5 The Results of the Qualitative Situational Analysis Investment...... 13 on Trade and Investment Initiatives...... 37 1.4.3 Global Determinants of Trade and FDI Flows.....14 2.5.1 Introduction...... 37 1.4.4 International and Regional South Africa Major Trade and Investment Agreements and Trends..15 2.5.2 Composition of the FGDs...... 37 1.4.5 Trends in National Trade and Investment...... 17 2.5.3 Provincial Focus Group – East London...... 37 1.4.6 Local Economic Development, Trade and 2.5.4 National Focus Group – Menlyn...... 38 Investment...... 20 2.5.5 Challenges Experienced during the Overall 1.4.7 Trends in Local Government Trade and Study...... 40 Investment...... 20 2.5.6 Areas of Future Research...... 40 1.4.8 South Africa – National Legislation, Policy and 2.6 Conclusion...... 40 Institutional Framework, Initiatives, Key State and CHAPTER 3: Summary and Recommendations...... 41 Non-state Actors in Trade and Investment...... 21 3.1 Introduction...... 41 1.5 Conclusion...... 25 3.2 Summary...... 41 CHAPTER 2: Findings Obtained Through Data 3.2.1 Consolidated Summary of Findings – Secondary Analysis...... 26 and Primary Data Quantitative Analysis...... 41 2.1 Introduction...... 26 3.2.2 Consolidated Summary of Findings – 2.2 The Results of the Secondary Data Analysis...... 27 Qualitative Analysis...... 43 2.2.1 International Trade and Investment Trends...... 27 3.2.3 Consolidated Summary of Findings – Key Entry 2.2.2 National Trade and Investment Trends...... 27 Points of SALGA in Supporting Trade and 2.2.3 Municipal Trade and Investment Trends...... 28 Investment in Municipalities...... 43 2.3 Sample Distribution of Municipal Officers Selected 3.3 Recommendations...... 44 for Face-to-Face Interviews...... 31 3.4 Conclusion...... 45

2 3 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa ACKNOWLEDGEMENTS The following entities/individuals are acknowledged: rofessor Paul Kibuuka; Mr Rueben Matlala; Professor Tustin from the Bureau of Market PResearch (BMR) at the University of South Africa (Unisa) to conduct the situational analysis on trade and investment initiatives at local government level in South Africa project on behalf of SALGA.

The Core Project Team led by Mr Simphiwe Dzengwa the former Executive Director: Municipal Finance and members of the Salga Management Committee for their strategic guidance of the situational analysis on trade and investment initiatives at local goverment level.

Ms Vailet Kowayi, SALGA Senior Advisor (Municipal Trade and Investment) for the proficient contract and project management including the project design; coordination of steering committee meetings; coordination of the face to face interviews; focus groups discusions; the inputs in the research sampling frame, research instrument, the research plan and review of the draft report.

Ms Nwabisa Gwele (SALGA Policy Analyst); Mr Lebohang Dinko (intern) and Salga provincial officials (Ms Prashina Mohangi; Mr Mfaniseni Ntombela; Ms Thabisa Cutalele and Mr Sfeile Swartbooi) for preparing and managing the key respondents, focus group processes and activities. Other SALGA officials (Mr Delani Khanyile; Mr Mxolisi Mchunu; Mr Seana Nkhahle; Ms Rachel Manxeba and Mr Charles Parkerson for their insight and inputs.

Participants of the SALGA Special Municipal Finance Research Workshop held on 30 Ocotber 2018 for the strategic and technical inputs to the report; Delegates to the National Members Assembly held on 29 November 2018 in Durban for the guidance and technical input to the preliminary presentation of the study Ms Margie Nowak, BMR Senior Research Coordinator for preparing and administering the contracting processes and activities.

The key respondents from NMB; Rustenburg and King Sabata Dalindyebo, and local/rural presidential poverty nodes respectively (Zululand and uMzimkhulu) municipalities for participating in the study.

The national and provincial government officials, representatives of chamber of business, trade and investment promotion in addition to development agencies that participated in the face-to-face and focus group discussions(FGDs) of the study respectively.

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ACRONYMS

ACBC Australia China Business Council EU European Union MNE Multi National Enterprises SALGA South African Local Government Association

AfCFTA Africa Continental Free Trade Area FCM Federation of Canadian Municipalities MoU Memorandum of Understanding SARM Saskatchewan Association of Rural Municipalities AIP Action Implementation Plan FFP Fraser Institute Fund for Peace NAFTA North American Free Trade Area SARS South African Revenue Services FDI Foreign Direct Investment NDP National development Programme BMR Bureau of Market Research SDGs Sustainable Development Goals FGD Focus Group Discussion NFL New Foundland and Labrador BMI Business Monitor International SEZ Special Economic Zone GDP Gross Domestic Product NMB Nelson Mandela Bay BOT Balance of Trade SME Small Medium Enterprise GEDA Economic Development Agency NTB Non-Tariff Trade Barrier BRICS Brazil, Russia, India, China and South Africa SMME Small Medium Micro Enterprise GFCF Gross Fixed Capital Formation ODA Official Development Assistance CATI Computer Aided Telephone Interviews SONA State of the Nation Address GGDA Gauteng Growth and Development Agency OECD Organisation for Economic Co-operation C-FTA Continental Free Trade Agreement and Development SPLUMA Spatial Planning and Land Use GVA Gross Value Added Management COGTA Co-operative Governance and Traditional PIPA Provincial Investment Promotion Agency Affairs IDZ Industrial Development Zone SPS Sanitary and Phytosanitary PTA Preferential Trade Agreement COMESA Common Market for Eastern and Southern IMF International Monetary Fund STR Small Town Regeneration Africa PTPA Provincial Trade Promotion Agency IPA Investment Promotion Agency TDCA Trade, Development and Cooperation PWC PriceWaterhouseCoopers Agreement CoJ City of Johannesburg IPR Intellectual Property Rights Q1 Quarter one T-FTA Tripartite Free Trade Area CRM Customer Relationship Management ITC International Trade Centre Q2 Quarter two TIKZN Trade and Investment KwaZulu-Natal CRP Common Revenue Pool KPI Key Performance Indicator RERC Research Ethics Review Committee TISA Trade and Investment South Africa dti Department of Trade and Industry KSD King Sabata Dalindyebo RFM Regional Financing Mechanism TNC Trans National Corporation EAC East African Community LDC Least Developed Country RSB Rustenburg ToR Terms of Reference ECDC Development Corporation LED Local Economic Development RVC Regional Value Chain TPO Trade Promotion Agency EIA Environmental Impact Assessment M&A Mergers and Acquisitions SA South Australia/South Africa UBCM Union of British Columbia Municipalities EPA Economic Partnership Agreement MFMA Municipal Finance Management Act SACU Southern African Customs Union UCM Union of Canadian Municipalities ETEA Department of Economic Development and MINMEC Minister and Members of the Executive Environmental Affairs Council SADC Southern African Development Community UMZ uMzimkhulu

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PRESIDENT CEO Cllr Thembi Nkadimeng Xolile George

s the rate of globalisation increases, countries are According to the National Treasury’s Section 71 his is SALGA’s ground-breaking Municipal Trade Singapore ($110 billion). Africa continued to register a stepping up effort to increase their investment publication, the aggregate municipal consumer debt and Investment Situational Analysis report-based modest 3% rise to $49-billion ($47-billion) in 2019, with Acompetitiveness. The majority of countries have was reported at R181.5 billion as at 31 December Ton a sample of six municipalities selected from South Africa consolidating on the recovery it recorded in established strategic investment promotion agencies 2019. Of this debt, households accounted for 68.5%. metropolitan cities; intermediate cities; district and local 2018, when inflows more than doubled from $2-billion to with the purpose of attracting foreign investors; According to the same report, only R34.3 billion of municipalities. The study was conceptualised by the $5.3-billion. In 2018, SA joined various other countries introducing ease of doing business reforms to improve the total consumer debt can be realistically collected, South African Local Government Association (SALGA) on the continent in signing the African Continental Free their rankings; offering cutting edge services to attract leaving a revenue gap to municipalities of R147.2 and conducted in collaboration with the Bureau of Trade Area (AfCFTA) agreement that aims to create a and promote investment and institutionalise red tape billion. High unemployment levels of 29.1%, ballooning Market Research (BMR) at the University of South Africa single continental market for goods and services, with reduction for business expansion and retention. indigent registers, high consumer indebtedness (UNISA). The research methodology involved desktop free movement of businesspeople and investments. and high poverty levels continue to contribute to review of literature; face-to-face interviews and focus The trade agreement is expected to expand intra- Empirical evidence shows that political stability, stable household’s low ability to pay for services. group discussions with key stakeholders. African trade by up to $35bn per year, ease movement macro-economic conditions, property rights protection, of goods, services and people across the continent’s policy continuity, efficiency in government regulations, Municipalities are therefore trapped in a vicious cycle The research involved the identification of the key borders and boost agriculture and industrial exports by safety and security, and trade openness are some of of poor revenue collection, huge revenue gap, poor state and non-state stakeholders and their roles; 7% and 5% respectively. the factors with positive correlation with FDI inflows. service delivery and ultimately the high risk of service assessment of the global, national; provincial and local National, provincial and local investment promotion provision protests by underserved citizens. level initiatives and trends; as well as identification At a national level; the South African President; agencies therefore need to develop strategies that of gaps and challenges at the municipal level. Mr. has made a number of political and promote these factors when drafting and implementing It is SALGA’s belief that if municipalities create Specifically, the research defined the envisaged socio-economic commitments by introducing strategies investment service offerings and strategies. a conducive environment for businesses to role of SALGA in assisting municipalities to address to encourage new investment in the economy and operate there would be a multiplier effect on FDI, bottlenecks and challenges in trade and investment; protect existing businesses. In April 2018 he announced As highlighted in SALGA’s Municipal Trade and employment rates, reduced job losses, increased identification of the key entry points for SALGA; that he was spearheading a drive to generate R1.2 Investment Situational Analysis report a number of disposable incomes for households and clarification of strategic partners and their roles and trillion in private investment over the next five years in Trade and Investment interventions are being driven by proposals regarding the establishment of a trade and order to create 1.0 - 1.5 million new job opportunities in government at the national and provincial levels in our increased ability to pay for services. This would investment function within SALGA. South Africa. To this end, the President organised two country. However, these efforts have so far been largely set municipalities and the nation at large on a investment summits during the second half of 2018 and fragmented, characterised by minimal cooperation path towards greater productivity and prosperity. This report is being published at a time when the global; end of 2019, ‘targeting both domestic and international and coordination at these levels. In particular to the national and local economies have been negatively investors, to market the compelling investment local government sector, it is sad to note that despite SALGA is committed to ensuring that municipalities affected by the Corona Virus (COVID-19) pandemic opportunities to be found in South Africa’. It is in light of being a critical stakeholder in the investment space its contribute towards President Cyril Ramaphosa’s which has caused demand and supply shocks. these national commitments that involvement and participation has so far been minimal. investment target of $100 billion within five years and According to an ILO preliminary report (2020); COVID It is critical to note that all investment activities end up improve the country’s investment climate and ease of -19 may result in 25 million job losses globally. Old SALGA is determined to support municipalities to being located in a municipal space, and therefore the doing business ranking from 84 to 50 by 2021 through Mutual estimates that the South African economy could provide a conducive environment for businesses to role of the local government cannot be underestimated. SALGA’s Municipal Trade and Investment project. In shrink by 2% while PriceWaterhouseCoopers expects a set-up, operate, expand and minimise shutdowns. As a body representing local authorities, SALGA fulfilling this mandate, SALGA will engage with key contraction of 1.5% due to the pandemic. Municipal Trade and Investment Situational Analysis strongly believes that municipalities are the key to strategic state and non-state partners to provide report identifies and highlights the various Trade unlocking economic development through creating a skills development, technical support, review relevant At the global level; UNCTAD (2019) asserts that Foreign and Investment initiatives at the national; provincial conducive environment for investors to set-up, operate, pieces of legislation, influence policy and provide Direct Investment (FDI) fell slightly from US$1.41 trillion and local levels, which SALGA will support over the expand and retain their businesses. This in turn will cutting edge research aimed at easing the challenges in 2018 to $1.39 trillion in 2019. The United States medium to long term. However; SALGA recognises that contribute to the betterment of the municipalities, their affecting municipalities as they implement Trade and remained the largest recipient of FDI, attracting $251 there are challenges related to limited inter-spherical residents and the nation at large. Investment initiatives. billion in inflows, followed by China ($140 billion) and and interdepartmental coordination and cooperation

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within government, which will negatively impact and retention; SALGA has developed a comprehensive To contextualise the tenure of the Zondo the effectiveness of these efforts. Municipalities’ programme aimed at assisting our member outcome of the research Commission of Inquiry are grappling with under-resourced (financial and municipalities through the challenges highlighted findings outlined in this into State Capture. In human resources) LED units; political interference; above. It is critical for municipalities to reduce the report, it is important 2019, the State poor budgeting and costing of LED projects; poor cost and time to do business and therefore SALGA; to consider certain of the Nation Address intergovernmental coordination; legislative hurdles; red in close collaboration with key stakeholders will assist external factors that (SoNA) was presented tape; outdated by-laws and poor implementation of municipalities to improve their ease of doing business prevailed during the to Parliament, reflecting by-laws. indicators. SALGA is committed to providing technical survey period and that on the importance support to municipalities and engage all relevant could have influenced of new investments In line with the Municipal Trade and Investment state and non-state stakeholders across all spheres ratings and rankings of to stimulate future Situational Analysis report recommendations and and ensure that the municipalities play a critical role performance against key economic growth. cognisant of municipalities role in creating a conducive in economic development as outlined in the national performance indicators environment for business set-up, operations, expansion investment strategic vision. by the participants. Widespread protest These include, for actions also occurred instance, during the survey period, there were a number during the research period, which mitigates against of resignations from high-level politicians including investment decisions. Although this report does not the of the North West Province, the Minister aim to measure the impact of these external factors, of Finance and the Mayor of the City of Cape Town. it acknowledges that these external influences are Likewise, there was an institution of commissions important when contextualising and interpreting the of inquiry by the Presidency to name but a few, the outcome of the situational analysis on trade and Nugent Commission of Inquiry into the South African investment initiatives at local government level in Revenue Services (SARS) and the extension of the South Africa.

1.2 AIM The project sought to determine the status quo regarding the current initiatives undertaken by the various state and non-state actors at the different spheres of government on trade and investment promotion and the role of CHAPTER 1: Background, Aim And Methodology SALGA in supporting municipalities to facilitate foreign, local trade and investment. To add value to the project, the research study also identified key partners in trade and investment and provided clarification in respect to their roles. municipalities have become crucial role players in the 1.1 INTRODUCTION Trade and Investment decisions of Trade Promotion Organisations (TPOs) and Investment Promotion Overall, the results of the study will guide SALGA and municipalities regarding the trade and investment his report captures the outcome of the 2018/19 Agencies (IPAs). In conducting the situational analysis landscape and how to positon SALGA to play a meaningful role in supporting municipalities. study of the situational analysis on trade and on trade and investment initiatives at the local investment initiatives at local government level in T government level in South Africa, it is important to The specific project objectives are to undertake a situational analysis of the trade and investment initiatives South Africa based on a sample of six municipalities. first understand the status quo regarding the current in the three spheres of government; determine the status quo, in terms of the current initiatives by the various The selected municipalities were categorised in terms initiatives undertaken by the various state and non- state and non-state actors at the different spheres of government on trade and investment promotion; to clarify of metropolitan, secondary or intermediate cities/small state actors at the different spheres of government the envisaged role of SALGA; to identify key entry points for SALGA; define strategic partners and their role(s); town regeneration programme sites and rural presidential on trade and investment attraction, expansion and design a clearly articulated logical framework highlighting strategic objectives, activities, indicators and targets poverty nodes. The study was conceptualised by the promotion. for the SALGA trade and investment function. South African Local Government Association (SALGA) and conducted by the Bureau of Market Research (BMR) It is against this background that SALGA commissioned The scope of the study entails a set of research activities categorised into the following five distinct phases, at the University of South Africa (Unisa). the 2018/19 study aimed at conducting a situational namely, a succinct review of literature; segmentation of municipalities; analysis of trade and investment analysis on trade and investment initiatives at local initiatives in municipalities; key face-to-face interviews and FGDs with relevant stakeholders; compilation of a The key mandate of SALGA is to assist in transforming government level in South Africa. The research involves detailed report. local government to enable it to fulfil its developmental determining the status quo regarding the current mandate. The Local Government Municipal Systems initiatives undertaken by the various state and non- Act 32 of 2000 as amended specifically requires state actors at the different spheres of government municipal councils to adopt a single and inclusive on trade and investment promotion. Specifically, the strategic plan for the development of municipalities research will define the envisaged role of SALGA in within a prescribed period after the start of the elected assisting municipalities to address bottlenecks in term of municipal council. Municipalities have a key role trade and investment; identify the key entry points for to play in coordinating and promoting local economic SALGA; clarify strategic partners and their roles; and development (LED). develop a clearly articulated logical framework spelling out strategic objectives, key performance indicators In addition to providing local services, developing and activities for an effective and efficient trade and infrastructure and the enabling regulatory framework, investment function within SALGA.

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1.4.1 Background and Global Economic commodity input prices for a 1.3 RESEARCH METHODOLOGY Outlook variety of manufacturing and agricultural producers The research methodology of the situational analysis on trade and investment initiatives at local government The United Nations Conference on Trade and will boost growth in level in South Africa comprised a secondary data comparative analysis utilising ten trade and investment key Development (UNCTAD) (2018) postulates that the those industries. performance indicators followed by both quantitative and qualitative research approaches. world is at the dawn of a fourth industrial revolution, While such trends propelled by frontier technologies and robotisation are largely positive The quantitative research targeted 16 municipal officials in the different categories of municipalities through advances that make production better, cheaper and for commodity face-to-face interviews. The officials targeted were mainly municipal managers, chief finance officers, heads of faster than ever before. importers - including LED, officials and members of the mayoral council in charge of trade and investment. the Eurozone, Japan This new industrial revolution offers enormous and many emerging The study interviewed 12 of the 16 key informants through face-to-face interviews. Four officials were not opportunities for economic growth and sustainable markets - they have accessed owing to unwillingness of the City of Johannesburg (CoJ) Metropolitan Municipality to participate development with potential benefits on a scale that negative fiscal and in the study. The qualitative research was conducted after the quantitative research. The qualitative research is difficult to imagine. New technologies promise growth implications for entailed two Focus Group Discussions (FGDs), each targeting on average eight participants. Overall, an average possibilities of industrial upgrading and leapfrogging. key commodity exporters attendance of five participants was achieved per focus group. Cheaper transport and communication, coupled with - Russia, Venezuela, Iran, more efficient logistics, can also help developing several South American The participants entailed representatives from trade and investment agencies, chambers of business, countries better link to global value chains. Some of economies and some sub- development agencies, provincial Departments of Economic Development and Environmental Affairs, provincial the most advanced emerging economies are already Saharan Africa economies, including Departments of Co-operative Governance and Traditional Affairs (COGTA) and the national Department of Small on the verge of becoming global technological leaders South Africa. Business Development respectively. several industries. The World Bank Group (2019) confirms that global The BMR utilised its experienced academic and research staff to conduct the face-to-face interviews and to Global flows of FDI fell by 23% in 2017. Cross-border growth is projected to moderate from a downwardly facilitate the FGDs. To protect the safety of all parties involved, the BMR ensured compliance with the required investment in developed and transition economies revised 3% in 2018 to 2.9% in 2019 and 2.8% in ethics (that is, consent and confidentiality) involving human objects. declined sharply, while growth was near zero in 2020-21, as economic slack dissipates, monetary developing economies. With only a very modest recovery accommodation in advanced economies is removed predicted for 2018, this negative trend is a long-term and global trade gradually slows. Growth in the United concern for policy makers worldwide, especially for States will continue to be supported by fiscal stimulus developing countries, where international investment is in the near term which will lead to larger and more indispensable for sustainable industrial development. persistent fiscal deficits. Escalating trade tensions are The troubling global investment picture underscores a major downside risk to the global outlook. If all tariffs the importance of a conducive global investment currently under consideration were implemented, they environment, characterised by open, transparent and would affect about 5% of global trade flows and could non-discriminatory investment policies. Moreover, it has dampen growth in the economies involved leading to been confirmed that over 100 countries have adopted negative global spill overs. While some countries could industrial development strategies in recent years. New benefit from trade diversion in the short run, rising trade types of industrial policies have emerged, responding protectionism would stifle investment and severely to the opportunities and challenges associated with the disrupt global value chains contributing to higher prices fourth industrial revolution. and lower productivity.

The AT Kearney Global Business Policy Council (2015) 1.4.2 Trends in International and Regional 1.4 CREATING AN UNDERSTANDING confirms that the global economy is finally transitioning from the great recession to a period of more stable Trade and Investment of the Local, Foreign Trade and Investment Landscape at an growth. However, there are still pockets of weakness The Organisation for Economic Co-operation and and new risks. Between 2015 and 2020, there is an Development (OECD) (2018) highlighted that the global International, Regional, National and Local Government Level anticipation of a return to annual global growth of about FDI flows decreased by 35% to $432 billion in the first 3 to 4%. An important global economic development is half of 2018 compared to the second half of 2017. the apparent reversal of the resource super-cycle that Compared to one year earlier, global FDI flows were he purpose of this section is to capture the context prospects 2018, investment trends monitor 2018, world dominated commodity markets in the 2000s. 44% lower than the first half of 2017. They dropped by within which trade and investment initiatives at local investment report 2018 - investment and new industrial 9% in Q1 and by 38% in Q2. Tgovernment level in South Africa prevail. It is strictly policies, latest trends in world trade 2017-2018, world Most notably, the price for a barrel of oil fell from a a desktop review of current documents and seeks to trade report 2018, what foreign investors want, doing peak of $133 in July 2008 to just $86 in October 2014 The overall decrease was mostly owing to the effects of consolidate the international, regional, national and local business in South Africa, Australian and Canadian and continued to fall through the end of the year. The the US tax reform. Repatriations of earnings from foreign government trade and investment landscape but also the municipal principles for free and fair trade. Nevertheless, International Monitory Fund (IMF) predicts that global affiliates to their US parents resulted in large negative roles of other local government associations. The section the report does not draw any conclusions at this stage oil prices will remain below $100 per barrel until at reinvested earnings. However, this decrease is likely to draws heavily on previous studies. nor make judgements regarding the status quo of current least 2020. This fall in global oil and other commodity have a minimum impact on the foreign operations of performance initiatives by state and non-state actors nor prices should provide a boost to global growth as US multi-national enterprises (MNEs) in the short-term The latter include the global economic outlook 2015- the envisaged role, entry points and logical framework consumers will have more spending power. Therefore, because it involves the sale or disposal of financial, as 2020, FDI in figures 2018, global investment trends and for SALGA. These topics are addressed in chapter 3. aggregate demand should increase. In addition, lower opposed to real assets.

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Government 1,2% 0,2

GDP Finance 1,1% 0,2 -3,2% Personal services 1,1% 0,1

-2,2% Construction -0,1

-3,6% Trade -0,5

-4,4% Transport -0,4

-6,9% Electricity -0,1

-8,8% Manufacturing -1,1

-10,8% Mining -0,8 factors that influence FDI decisions. These data sources development and decent jobs to redress included Business Monitor International (BMI), Fraser legacies. UNCTAD (2017) indicates that FDI flows to developed in 2017, both in volume and value terms. Merchandise Institute, Fund For Peace (FFP), Heritage Foundation, economies fell by one-third to $712 billion in 2016- trade volume, as measured by the average of exports IMF, UNCTAD, World Economic Forum (WEF) and the The trade strategy priorities include the following: 2017. The fall can be explained in part by a decline from and imports, grew by 4.7%%, marking the first annual World Bank Group. PWC analysed the 19 factors to try • Focus on African development, industrialisation and relatively high inflows in the preceding year. Inflows to increase in excess of 3.0%% since 2011. The dollar value to explain different levels of FDI inflows across countries integration. developed economies in 2015-2016 exceeded $1 trillion, of merchandise exports rose by 11%%, to US$ 17.73 over the period 2010 - 2016. Based on the available mainly owing to a surge in cross-border Mergers and trillion, while commercial services exports increased by data, PWC determined the impact of the macro factors • The need to shift Africa current consumption Acquisitions (M&As) and corporate reconfigurations. FDI 8%% to US$ 5.2 trillion. on FDI inflows as a percentage of gross domestic and commodity-driven growth path onto a more flows to Africa over the same period declined by 21% to product (GDP) for 132 countries. sustainable industrial development. $42 billion. The slump in FDI flows to Africa was owing to Merchandise trade growth in 2017 was up sharply from • Pursue ‘development integration’ in the Southern weak oil prices and lingering effects from the commodity 2016, when trade volume grew by just 1.8%, the smallest The use of the ratio of foreign investment to the size of Africa Customs Union (SACU), the Southern Africa bust, as flows contracted in commodity-exporting increase since the financial crisis of 2008. Strong growth the economy excludes the need for considering the size Development Community (SADC), the COMESA- economies such as Egypt, Mozambique, the Congo, in trade volume in 2017 was driven primarily by cyclical of the country’s economy in the analysis. The size of EAC-SADC Tripartite Free Trade Area (T-FTA) and the Nigeria, and Angola. FDI to South Africa also contracted factors, as world growth in GDP at market exchange the GDP explains a significant amount of FDI dynamics Continental Free Trade Area (C-FTA) through market by 41%. FDI inflows to diversified exporters led by rates rose to 3.0% from 2.3 % in the previous year. This simply by offering investors a large market with a large integration, industrialisation and regional value-chains Ethiopia and Morocco were relatively more resilient. economic activity was driven by increased investment pool of potential acquisitions. and infrastructure development. spending, particularly in the United States, and rising • Maintain trade and investment relations with International trade can be broadly distinguished between consumption, notably in Japan. Meanwhile, China PWC used correlation coefficients as an indication of industrialised economies. trade in goods (merchandise) and services. The bulk and the European Union maintained a steady rate of the relationship between FDI and other variables. The • Work to build industrial complementarities and shift of international trade concerns physical goods, while expansion, providing a solid base for global demand. correlation coefficient is a measure of the extent to the structure of trade with dynamic economies of the services account for a much lower share. World trade in Growth in trade volume was strong in 2017 despite which two measurement variables vary together. The South including the BRICS states but also work to goods has increased dramatically over the last decade, trade tensions. In the first half of 2018, these tensions value of the correlation coefficient does not depend on ensure development-outcome at the WTO. rising from about $10 trillion in 2005 to more than $18.5 translated into several trade-restrictive measures being the units of the measurement variables. The findings trillion in 2014 to then fall to about $16 trillion in 2016. imposed, covering a wide range of goods and major show that, across 132 countries, two factors showing Regional Economic Integration In Africa (REI) Trade in services greatly increased between 2005 and economies. How these measures will affect trade in 2018 the highest correlation with FDI inflows are openness to 2016 (from about $2.5 trillion to almost $5 trillion). The and going forward remains to be seen, but they risk trade and the burden of government regulation. South Africa advocates for a developmental integration value of international trade of both goods and services triggering a cycle of retaliation that could be disruptive for approach in all African regional economic integration declined substantially in 2015 and 2016. Following the global trade and growth. 1.4.4 International and Regional South initiatives informed by the realisation that trade strong rebound in 2010 and 2011, export growth rates integration alone does not bring sufficient economic Africa Major Trade and Investment benefit, and therefore attempts to address industrial (in current dollars) are now at much lower level than in 1.4.3 Global Determinants of Trade and FDI the pre-crisis period and were negative both in 2015 and Agreements and Trends capacity and infrastructure development are important. 2016 for developing and developed countries. Flows According to dti (2019), the South African government’s As indicated earlier, Africa is the centrepiece of South PricewaterhouseCoopers (PWC) (2018) utilised several broad national development strategy aims to accelerate Africa’s global economic strategy. As part of this Global trade recorded its highest growth rate in six years data sources to determine a selection of 19 macro growth along a path that generates sustainable strategy, South Africa has consistently championed the

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development integration agenda in SACU, SADC, T-FTA quantitative restrictions on importation and exportation. and the African Continental Free Trade Area (AfCFTA). The SACU review is underway with the key focus on The development integration agenda combines the architecture of tariff setting and administration; market integration, infrastructure development and identification of public policy interventions and tools to industrialisation. promote regional value chains (RVCs); strengthening cooperation on trade facilitation to improve boarder The African Continental Free Trade Area efficiencies and address behind the boarder issues The African Union assembly launched the AfCFTA such as sanitary and phytosanitary (SPS) measures negotiations in June 2015. Phase 1 of the AfCFTA and exploring new ideas regarding the revenue sharing negotiations includes the protocol on trade in goods agreement; and South Africa to continue to be the and the trade in services; Phase 2 includes competition, manager of the common revenue pool (CRP) due to its intellectual property and investment. The AfCFTA advanced financial markets and being the economic hub is intended to harmonise regimes and establish a of the region and assessing the feasibility of establishing single rulebook for trade and investment through the a regional financing mechanism (RFM) for regional progressive liberalisation of tariffs and reducing barriers industrial and infrastructure projects. to trade in goods and services. According to the United Nations Economic Commission for Africa (UNECA) Southern African Development Community TRADE AGREEMENTS WITH COUNTRIES IN EUROPE – ECONOMIC (2018), AfCFTA promises to unlock intra-Africa trade to (SADC) PARTNERSHIP AGREEMENT (EPA) BETWEEN EU AND SADC EPA GROUP grow by 52% by 2022. Thirteen (13) SADC member states have established a free trade area with Angola, the Democratic Republic South Africa decided to join the economic partnership agreement between the European Union (EU) and the Africa’s share of world trade is estimated at 3%. In 2015, of Congo and Comoros still to join the trade protocol. SADC EPA group to establish a regional agreement with the EU in October 2016 and to secure further market the WTO provided a comparative analysis of intra- The focus is on the consolidation of the FTA and a study access especially in agriculture. EPA replaced the trade chapter of trade, development and cooperation regional trade to indicate intra-Africa trade standing at is underway to ascertain the readiness to establish a agreement (TDCA). 18%; intra-Asian trade at 52%; intra-North American customs union. trade at 50% and intra-EU trade at 70%. South Africa is South Africa achieved its objectives and improved market access beyond that under the TDCA on fisheries the largest contributor to intra-Africa trade accounting All 15 countries in SADC have signed products as well as 32 agricultural products. for over 24.9%, with its trade increasing by 8.6% the services protocol and negotiations in to R478.8 billion in 2017. South African exports are Trade agreements with BRICS countries diversified with mineral products, machinery, chemicals, transport, financial, telecommunications and The SACU-India Preferential Trade Agreement (PTA) is aimed at boosting south-south trade in a targeted iron and steel products accounting for 50% of its total tourism finalised but energy and construction manner with a more focused approach to tariff preferences compared to FTA. The PTA also provides a legal exports in 2017. services are still ongoing. The regional institutional framework to manage trade. India is now one of South Africa’s largest partners with trade in 2017 industrial development strategy has been over R107 billion. There has been difficulties experienced in finalising the SA/SACU offer including concerns AfCFTA advances South Africa’s regional integration raised with non-tariff barriers (NTBs) in the Indian market and requests by India to engage in sensitive sectors aspirations and agendas 2063. The African market approved. such as textiles and clothing. provides South Africa with alternative market for export of value added goods and services. Tripartite Free Trade Agreement between The SACU - MERCOSUR PTA comprises of Argentina, Brazil, Paraguay, and Uruguay. Venezuela recently COMESA, EAC and SADC became a member of MERCOSUR but has been suspended since December 2016. The PTA is aimed at In 2017, South Africa had a trade surplus The tripartite free trade area (TFTA) will combine markets promoting trade between the two sides on over 1000 tariff lines on both sides. The PTA was concluded and of R202 billion with manufactured goods of 26 countries with a population of nearly 625 million signed in 2008 but executed as from 01 April 2016. South Africa implemented the agreement on 10 October amounting to 64% of the exports to the and combined GDP of US$1.6 trillion. 2016 retrospectively to 01 April 2016. continent. Phase 1 involves trade in goods and services while South Africa implemented the agreement on 10 October 2016 retrospectively to 01 April 2016. It offers Phase 2 focuses on trade in services negotiations, preferential margins of between 10% and 100%. The first SACU-MERCOSUR committee meeting under the The key export destinations are East and Southern Africa cooperation on intellectual property rights (IPR), PTA took place in May 2017 in South Africa. South African exports in the PTA have been growing steadily in the region primarily SADC. AfCFTA presents an opportunity investment and competition policy. Based on the areas of aluminium, iron, steel, vehicles, and mineral fuels. for expansion to new markets in West and North Africa development integration model, the key focus is to achieving larger economies of scale, a bigger market and unlock industrial development through RVCs and improved prospects for the African continent to attract 1.4.5 Trends in National Trade and are crucial for transferring money and expertise from promote intra-regional investments. The negotiations on multinational companies to local enterprises. Emerging investment. This will boost intra-Africa trade and build an the legal framework have been concluded and the focus Investment integrated market in Africa that will see a market of over markets also need FDI to help finance infrastructure now is on tariff negotiations. South Africa’s trade with President Cyril Ramaphosa announced in April 2018 that deficits. 1 billion people, a combined GDP of US$3.3 trillion and TFTA countries represents about 16% of South Africa’s he was spearheading a drive to generate R1.2 trillion a consumer expenditure of up to US$4.0 trillion. trade with the world. in private investment over the next five years in order Data from the United Nations Conference on Trade and to create 1.0-1.5 million new job opportunities in South The Southern Africa Customs Union (SACU) Development indicates that FDI flows into South Africa The bulk of the trade is with SADC countries but Africa. To this end, he assembled a team of finance and declined from an equivalent 2.3% of GDP during 2013 The SACU treaty is a customs union plan signed by the Egypt, Kenya, Ethiopia and Uganda feature as export business experts as investment envoys (PWC, 2018). to 0.5% of GDP in 2016 and 0.4% of GDP in 2017. six Southern Africa heads of state on 21 October 2002 destinations of potential. Focus is on conclusion of the The overall number of completed deals in South Africa providing for free trade in goods and a common tariff. agreement with the East African Community (EAC) and FDI is an important enabler of economic growth. For declined from 163 in 2015 to 117 in 2016 and fell to just The free trade calls for the elimination of tariff duties and continue negotiations with Egypt. emerging market economies, foreign investment inflows 79 in 2017.

16 17 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

Economic growth in the country was on a downward The plan is focused on five pillars: trajectory in 2014 - 2016, with small recovery seen in Trade openness: ‘South Africa has acceded to the 2017. As a result, real GDP averaged just 1.6% per Tripartite Free Trade Area agreement: It will open annum during 2012-2017, in contrast to the National market access opportunities for South African export Develoment Plan’s (NDP) goal of economic growth products, contribute to job creation and the growth of exceeding 5% per annum towards 2030. South Africa’s industrial sector.

To gain further insight into the South African FDI Efficiency of government regulation: Government specific environment, PWC (2018) undertook a time will reduce the regulatory barriers for small series analysis of the country’s inflow data in addition businesses and work with social partners to build to the 19 factors discussed above in order to a small business support ecosystem that assists, understand the correlation between South Africa’s nourishes and promotes entrepreneurs. specific variables overtime. Implementation Reprioritisation Establishment of Addressing Investing in Safety and security: ln improving the quality of life of growth- of public an Infrastructure urgent and municipal social The results show that quality of governance, political of all South Africans, government must intensify all enhancing spending to Fund: pressing matters infrastructure economic support job in education and improvement: stability and property rights showed the top three efforts to tackle crime and build safe communities. The fiscus will reforms: creation: R50 health: Redirecting highest correlations with FDI inflows. Also that, in This will include personnel and other resources to contribute R400bn The government has Reforming visa billion directed over the medium resources towards identified 57 priority addition to the 19 factors discussed above strong restore capacity and experience at the level at which regime to boost to activities that immediate social correlations with FDI inflows were shown by three new term, which the municipalities in crime is most effectively combated. tourism; approval have the greatest government will challenges, order to unlock variables, namely, the quality of infrastructure, control of of the mining impact on use to leverage including the dire infrastructure corruption and policy continuity. Property rights: Government is determined that charter to create economic growth, additional state of sanitation spending in the policy certainty domestic demand facilities in many expropriation without compensation should be resources from short term, which Looking ahead, it is encouraging that South Africa has in the sector; and job creation, developmental public schools, will cover, among implemented in a way that increases agricultural already made promises to address these issues. In the and allocation with a particular finance institutions, material shortage others, sewerage production, improves food security and ensure that state of the nation address (SONA) 2018, President of high demand emphasis on multilateral in hospitals, and purification and the land is returned to those from whom it was taken radio spectrum township and development banks the filling of critical reticulation, refuse Ramaphosa promised ‘a major push to encourage towards making rural economies, medical posts, significant new investment in the economy’. To this end, under colonialism and apartheid. and private lenders sites, electricity communication women and the and investors. including nurses reticulation and the President committed to organising an investment more competitive. youth. and interns. water reservoirs. summit during the second half of 2018, ‘targeting both The President also acknowledged that South Africa’s domestic and international investors, to market the economic difficulties are severe and will take an compelling investment opportunities to be found in extraordinary effort and some time to overcome. In this In SONA 2019, the President reported the significant Based on the experiences over the past year and to South Africa. regard, the President announced a cabinet approved progress made in implementing economic stimulus plan build on the momentum achieved government hosted economic stimulus and recovery plan. The plan consists by restoring policy certainty in mining regulation and the the South Africa Investment conference again in 2019. The conference was held in October 2018 post special of measures both financial and non-financial to be visa regime, crafting the path towards mobile spectrum The intention is that investment generated should be envoys of investment travelling the globe in the run-up implemented immediately to firstly ignite economic allocation and reviewing port, rail and electricity prices in spread out in projects throughout the country. In this to the summit. At the end of the summit major local and activity, secondly restore investor confidence, thirdly addition to the special focus placed revamping industrial regard, the President has asked provincial governments international corporates pledged a total of R290 billion prevent further job losses and create new jobs, and parks in townships and rural areas. to identify investible projects and ensure that the country towards investment in South Africa. The President also fourthly to address some urgent challenges that affect the builds investment books for each of the nine provinces made specific promises relating to the factors identified conditions faced by vulnerable groups among the people The inaugural South Africa Investment Conference in to present to potential investors. in the SONA 2018 specifically: of South Africa. October 2018 provided great impetus to the drive to mobilise R1.2 trillion in investment over five years. The Following the successful investment conference, a investment conference attracted around R300 billion in group of South African business leaders have initiated investment pledges from South Africa and international the Public Private Growth Initiative to facilitate focused companies. There was also a significant increase in FDI investment plans of leading companies across 19 in 2018. In 2017, South Africa recorded an inflow of FDI sectors of the economy from mining to renewable amounting to R17 billion. Official data show that just in energy, manufacturing and agriculture. the first three quarters of 2018, there was an inflow of R70 billion. These industries expect to substantially expand investment over the next five years and create many new To prove that the South Africa Investment jobs, especially if government can enhance the demand Conference was arguably not just a talk shop for local goods, stabilise the labour environment and improve conditions for doing business. currently projects to the value of R187 billion are being implemented and projects worth another As part of efforts to remove constraints to greater R26 billion are in pre-implementation phase. investment, government has established a team from the Presidency, Invest South Africa, National Treasury Going forward, the government will identify the sectors and the Department of Planning, Monitoring and and firms needed in South Africa and actively attract Evaluation that will address the policy, legal, regulatory investors. and administrative barriers that frustrate investors.

18 19 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

This initiative is aimed at improving the ease of doing inflation has remained low. The South African rand has However, some top performers do stand out. Cape on national and local policy makers’ ability to address business in South Africa which is essential to attracting also strengthened, and investor confidence improved Town leads on two indicators dealing with construction some cross cutting issues. As a first order of business, investment. after the recent change in government leadership. permits and getting electricity and Mangaung on the local authorities should increase coordination to other two, registering property and enforcing contracts. streamline service delivery for businesses. Across nearly 1.4.6 Local economic development, trade and Doing business measures the regulatory business all indicators, there is evidence that authorities’ lack of environment for small and medium size enterprises Every jurisdiction has something to share with its internal coordination makes processes more stringent investment (SMMEs). It assesses whether an economy has good peers and good practices can be found even in lower for entrepreneurs. The World Bank (2011) defines LED as the process by policies and legislative framework to yield positive performing locations. This means that top performers which public, business and non-governmental sector outcomes for entrepreneurs and increased economic also have room to improve and learn. Second, while municipalities still have significant partners work collectively to create better conditions for activity. room for improving on their own, collaboration with economic growth and employment generation with the For example, Tshwane brings up the rear on the national government would increase the range of objective of building up the economic capacity of a local Recognising that governments play a vital role in construction permitting. However, obtaining a the areas improved. The obstacles firms face extend area to improve its economic future and the quality of life bolstering private sector development promotes smart construction approval in Tshwane is less expensive than beyond mere process efficiency. Businesses also for all. regulation. The key premise is simple: clear laws and in Cape Town. Similarly, Buffalo City is in the middle depend on good quality regulations to protect their regulations afford entrepreneurs the confidence and of the ranking on getting electricity, yet it is the fastest interests. Because the quality of business regulation In this regard, the South African national framework for opportunities to invest. place to obtain a connection. Requiring only 76 days to affects local entrepreneurs but is mostly beyond the LED recognises that LED seeks to create competitive, connect to the power grid, it is two weeks faster than purview of local government action, there is a need for sustainable, diverse, innovation-driven inclusive local Rules should be efficient, transparent, accessible and the next fastest location. better collaboration between the levels of government. economies that are vibrant places in which to live, enforceable. In the annual Doing Business assessment Drawing national departments into the conversation invest, and work, to maximise local opportunities, measuring 190 economies globally, the CoJ represents The uneven performance among locations is best on local improvement would allow national decision address local needs, and contribute to South Africa’s South Africa as its largest business city. However, illustrated by the distance to frontier measure, which makers to better understand local needs and national development objectives, including sustainable the CoJ does not tell the full story. South Africa has shows how far a location is from recorded global best implement changes improving conditions across the ways of utilising local resources and expand learning 257 local governments. Therefore, entrepreneurs face practices, the ‘frontier’. For example, in construction country. capabilities. LED catalyses local industries and different local regulations and practices depending on permitting, Cape Town and eThekwini’s distance to production value-chains through exploitation of where they operate their business. frontier scores: 75.48 and 73.65 respectively place 1.4.8 South Africa – National Legislation, technology and innovation. them among the 25% percentile of economies Policy and Institutional Framework, 1.4.7 Trends in local government trade and globally. Cape Town performs as well as Belgium Initiatives, Key State and Non-State Moreover, it encourages municipalities to develop clear investment and outperforms the average for OECD high-income Actors in Trade and Investment and realistic policies on supporting and developing economies. Conversely, Tshwane’s score places it in The indicators measured the complexity and cost informal enterprises to ensure their welfare and growth. the bottom half of global economies, behind Eswatini National Development Plan (NDP) of regulatory processes and the strength of legal and just ahead of Namibia. This gap is mostly because institutions. These indicators were selected because The NDP is a development compass for South Africa These include interventions that address the creation of of differences in procedural complexity and the time to they relate to regulatory areas that are governed locally which was adopted in 2012. With respect to the an enabling business environment, such as reducing both obtain approval of a building plan. More importantly, or that depend on local implementation of national economy and employment, the NDP sets a target of the cost of doing business and relaxing the regulatory municipalities with fewer preconstruction approvals regulations. reducing the unemployment to 14% by 2020 and 6% barriers to business. It should also include more proactive and better internal co-ordination among the relevant by 2030. To achieve this target, an additional 11 million interventions such as the provision of funding. In South Africa, local governments have almost exclusive departments perform better. jobs should be created. The NDP seeks to increase competence in some areas such as dealing with the GDP by 2.7 times in order to achieve an increased In terms of the World Bank Group doing business in Looking at the way forward, while some locations GDP per capita of R110, 000 per person in 2030. South Africa 2018 release, a wave of optimism continues construction permits and getting electricity. Registering property, for its part, falls under a hybrid of national and have advanced towards best practice, there is still The achievement of this target will require average to blow across South Africa as the country benefits from significant room for improvement across the country. annual GDP growth of 5.4% over the period. The NDP renewed political stability and improved global economic local authority. Yet even in those areas where national regulation reigns, enforcing contracts and trading Overall, while locations should continue streamlining proposes that economic growth and development conditions. Since the end of the economic super- regulatory processes, they must also start improving and the creation of 11 million jobs by 2030 can be cycle and the severe drought between 2005 and 2006, across borders, actions taken locally by a court or a port authority can determine the complexity and efficiency of the quality of regulation. Moreover, advancement hinges achieved. the regulatory process.

The results show that business regulations and their implementation vary across the locations, and no location does equally well across all areas measured. Six locations: Cape Town, eThekwini, Johannesburg, Mangaung, Msunduzi, and Tshwane make the top third of the ranking in two areas measured; yet they are also in the bottom third on at least one indicator.

Buffalo City and Nelson Mandela Bay are in the middle of the ranking for the three indicators and lag on the last. Meanwhile, Ekurhuleni is in the middle of the ranking across all indicators. Uneven performance across indicators points to opportunities for peer learning.

20 21 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

This could be through increasing exports; investing The role of dti (Department of Trade and Industry) Special Economic Zone (SEZ) Trade and Investment ; KwaZulu-Natal: Trade in infrastructure to facilitate economic activity that is and Investment KwaZulu-Natal; : Free State The dti plays a critical role in the promotion of economic The South African government, in an effort to reposition conducive to growth and job creation; lowering the cost Development Corporation; Eastern Cape: Eastern Cape development and meaningful participation in the global itself in the world economy, established the Industrial of doing business; matching unemployed people to Development Corporation. economic and trade environment. It achieves this Development Zones (IDZ) programme. The Programme’s jobs; providing a tax subsidy to business to reduce the by working to build an equitable multilateral trading main focus was to attract FDI and export of value-added cost of hiring people; rewarding the setting up of new Service offerings of the promotional agencies system that facilitates development, strengthens trade commodities. The SEZ policy provides a clear framework businesses including collaborating with companies; are as follows: hosting and coordinating foreign and investment links with key economies. A significant for the development, operations and management of reducing the cost of living for low-income and working business delegations; assistance regarding company feature of the dti’s international engagement also SEZs, including addressing challenges of the current class households; reducing the cost of regulatory registrations, visas or work permits and tax; providing involves work to support African regional economic IDZ Programme. compliance; supporting small business through better integration and development cooperation. and disseminating market intelligence on sectoral and coordination of relevant agencies; development finance regional economic data; facilitating access to national The purpose of the SEZ programme, therefore, is to institutions, and public and private incubators; building and local government incentives; site identification and The dti recognises the importance of promoting expand the strategic industrialisation focus to cover and expanded skills base through better education and evaluation; matchmaking investors with businesses; trade and inward investment, and building trade and diverse regional development needs and context; vocational training. The NDP advocates for a balanced promotion of business events/exhibitions. investment relations. It focuses on encouraging exports provide a clear, predictable and systemic planning approach to sustainable and inclusive development. in order to leverage global growth for the development of framework for the development of a wider array of the South African economy, through the establishment of SEZs to support industrial policy objectives, the IPAP Trade and Investment SA collaborative agreements with existing trading partners New Growth Path (NGP) and the NGP; clarify and strengthen governance a. Investment Marketing and dynamic fast-growing emerging markets. The dti, arrangements, expand the range and quality of support The aim of the NGP is to direct capital and capacity in partnership with PIPAs, undertakes investment and measure beyond provision of infrastructure; and provide The marketing of investment opportunities and the at activities that maximise the creation of decent export promotion activities in targeted markets that a framework for a predictable financing framework to promotion of packaged investment projects. Trade work, which will be measured several quality jobs are aligned to South Africa’s international relations and enable long-term planning. and Investment South Africa (TISA) achieve this by created, the rate, labour intensity and composition of cooperation agreements. undertaking various local and foreign marketing economic growth, lower rates of income equality and SEZs are geographically designated areas of a country initiatives where projects and opportunities are poverty, and environmental outcomes. Export promotion set aside for specifically targeted economic activities, presented to investors. The directorate is mandated to promote South African supported through special arrangements (that may b. Investment Information It seeks to achieve 5 million value added goods and services abroad by broadening include laws) and systems that are often different from For decision making and planning, foreign and the export base, increasing market share in targeted those that apply in the rest of the country. Furthermore, new jobs by 2020. high growth markets and sustaining market share in SEZs may be sector-specific or multi-product and the local investors can get the following information: The jobs drivers in the NGP are the following: traditional markets. This objective is pursued through the following categories of SEZs have been defined as per information on the local economic and business Substantial public investment in infrastructure review and finalisation of the National Export Strategy. the SEZ Act No. 16 of 2014. A list of SEZs is presented environment; information on investment opportunities to create employment directly in construction, in annexure B: within South African sectors and industries; information on incentive packages; information operations and maintenance, and the production The latter which is built on the following critical pillars: • “Industrial Development Zone” means a purpose built on the local regulatory and legal environment; of inputs and by improving efficiencies across the • Improving the enabling export environment; industrial estate that leverages domestic and foreign information of South Africa’s trade and investment economy; targeting labour absorbing activities across • Strengthening the export institutional framework; fixed direct investment in value-added and export- the main economic sectors, that is, agriculture and oriented manufacturing industries and services. policy; information on government policy in strategic • Increasing the demand for South African goods and sectors. mining value chains, manufacturing and services; services through market diversification; • “Free Port” means a duty free area adjacent to a port new opportunities in the knowledge and green • Enhancing the Country Value-Proposition and of entry where imported goods may be unloaded for c. Outward Investment economies; leveraging social capital in the social Sector Branding; value-adding activities within the SEZ for storage, As part of the Government’s objective to assist in the economy and public services; fostering rural repackaging or processing, subject to customs • Broadening the export base as outlined in the National economic development of its neighbouring countries, development and regional integration. import procedures. Exporter Development Programme; TISA can help locally based business to enter into • “Free Trade Zone” means a duty free area offering • Enhancing Export Incentives and Trade Financing foreign countries. The NGP proposes that government can provide storage and distribution facilities for value-adding Instruments. inducements to private investment in targeted sectors activities within this SEZ for subsequent export. This could be done through the introduction to prioritising labour-intensive activities for the provision Investment Promotion Agencies and Government Export Promotion Offerings • “Sector Development Zone” means a zone focused of appropriate and cost-effective infrastructure, on the development of a specific sector or industry agencies in Africa; introduction of investors to regulatory interventions that address market and • Providing market intelligence and advice, e.g. through the facilitation of general or specific industrial projects and key stakeholders in private and state failures, measures to improve skills systems and identification and information on new products and infrastructure, incentives, technical, and business public sectors in Africa; project financing and deal in some cases subsidise production and innovation. new markets. services primarily for the export market. structuring with financial institutions. • Trade-lead facilitation. • Facilitating exports by matching potential exporters Provincial Promotional Agencies with foreign buyers. The provincial promotional agencies in South Africa • Providing In-Market Support. are as follows: Gauteng: Gauteng Growth and • Export marketing and investment assistance (EMIA) in Development Agency; : Western Cape addition to financial assistance. Investment and Trade Promotion Agency; North West: • Providing access to markets through investment and Invest North West; : Northern Cape trade initiatives, outward selling mission and national Economic and Development Agency; : pavilions. Mpumalanga Economic Growth Agency; Limpopo:

22 23 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

The NWDC offers the following trade and investment • Link opportunities to the developmental needs of the services to the investors; facilitating joint venture and KwaZulu-Natal community. equity partnerships; providing information on financing • Ensure easy access to investment and export trade options and investment incentives; providing advice opportunities. on feasibility studies and business plans; assisting investors to obtain work and business permits; Providing TIKZN Key Services are: assistance in obtaining suitable factory space; assisting Trade and Investment KwaZulu-Natal undertakes a existing firms to expand and reinvest; assisting diverse range of key activities and provides support companies to find export markets for their products; services designed to ensure the successful promotion of advisory services to improve company growth and business investment and trade development. performance; competitiveness improvement support; advice on productivity and process improvement; and Such activities and support include: facilitating market access to businesses in the province. • Joint venture facilitation. Eastern Cape Development Corporation (ECDC) • Business linkages between small and big businesses. The Investment Promotion Unit of ECDC is the official • The timely provision of relevant and reliable information investment promotion agency of the Eastern Cape to both potential an existing investors and traders. Province. Its mandate is to actively market the Eastern • Assistance to both existing and new investors Cape and to facilitate foreign and local direct investment regarding applications for both investment and export into the province. In so doing, the agency creates marketing incentives. meaningful jobs and stimulates economic growth. • Applications for business permits for foreign investors. The Provincial Trade Promotion Agencies (PTPA) Trade and Investment Promotion Trade and Investment KwaZulu-Natal (TIKZN) • Negotiation for Local Government incentives on behalf of investors. and Investment Promotion Agencies (PIPA) TIKZN is a trade and inward investment promotion In order to stimulate and maintain inward and outward • The provision of project support and after-care services agency established to promote the province of KZN as an trade and investment, the GGDA promotes target to investors. Gauteng Growth and Development Agency sectors locally and internationally working with industry investment destination and to facilitate trade by assisting • The provision of assistance to emerging international (GGDA) bodies to determine appropriate strategies for identified local companies’ access to international markets. import and exports markets. The GGDA also supports traders. The GGDA was established in 2012 following merger emerging entrepreneurs by actively seeking market entry The mission of Trade and Investment KwaZulu-Natal • International trade enquiry assistance. between Gauteng Economic Development Agency points for qualifying companies. is to: (GEDA) and Blue IQ Holdings (Pty) Ltd. The move • The location of suitable premises for investors. to merge the two entities formed part of a broader • Identify and package export trade and investment • Assistance in securing project and operational finance. North West Development Corporation (NWDC) restructuring operation aimed at enhancing the role opportunities in KwaZulu- Natal. of the Gauteng Provincial Government in driving The NWDC has a dedicated division focusing on the • Brand and market KwaZulu-Natal as an investment investment, growth and innovation in the provincial following trade and investment areas: destination. economy. • Positioning the Province as an attractive investment destination. The core areas of the GGDA are follows: 1.5 CONCLUSION • Providing a one-stop shop for investment promotion a. Business Enablement and facilitation, investor services; aftercare support for The discussion under this section has attempted to create an in-depth understanding of the situational analysis investors. on trade and investment initiatives at local government level in South Africa. The GGDA works with national government and related entities to create an environment more conducive for • Support the development and growth of Black doing business. This includes engaging with national Industrialists in the province. government to propose regulatory changes as well • Using provincial imperatives and competitive as establishing “one stop shop” for doing business in advantages to grow trade and exports. Gauteng. The GGDA targets specific sectors to enable • Creation of platforms for trade/export and Investment business to operate more effectively, actively addressing for the province. constraints specific to those sectors. • Using the SEZ as a means for Investment attraction. b. Capital Projects • Using Trade and Investment to support ACT Policy through identification of key markets and ensure The GGDA works with other spheres of government market access. and the private sector to develop transformative infrastructure. It identifies projects that are catalytic, • Facilitate market access for North West based crosscutting, multi-sectoral and complex to manage. businesses. The expertise of GGDA is in designing large-scale • Facilitate synergistic initiatives with local and district projects, leveraging necessary stakeholders and financial municipalities. support and building the client base required to utilise the infrastructure.

24 25 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

while those to developing economies remained stable. 2.2 THE RESULTS OF THE Hence, developing economies accounted for a growing share of global FDI inflows in 2017, absorbing 47% of the SECONDARY DATA total, compared with 36% in 2016. Developing economies can draw on a range of external ANALYSIS sources of finance, including FDI, portfolio equity, long- As indicated above, the secondary data on trade and term and short-term loans (private and public), ODA, investment utilised for the analysis was sourced mainly remittances and other official flows. FDI has been from the Quantec Easydata Base standardised regional the largest source of external finance for developing data 2017, the Municipal IQ hot spots monitor 2018, economies over the past decade, and the most resilient CitiesNetwork 2017, and the South African Auditor to economic and financial shocks. On average, between General’s report MFMA 2016/17. The research also 2013 and 2017, FDI accounted for 39% of external placed significant reliance on the analytical work of the finance for developing economies. For the LDCs, United Nations Conference on Trade and Investment as however, ODA is the most significant source of external acknowledged under the figures adopted. finance, at 36% of external finance over the same period, compared with 21% for FDI. 2.2.1 International Trade and Investment Trends 2.2.2 National Trade and Investment Trends According to UNCTAD (2018), there are three key factors The South Africa population has grown below influencing future Global Trade & FDI flows: replacement at an average rate of 1.5% over the last 8 CHAPTER 2: Findings Obtained Through Data Analysis firstly, economic fundamentals indicating that more years but higher than other Brics countries with India buoyant economic activity will help lift world trade, at 1.2%, Brazil at 0.9%, China at 0.5% and Russia which is already estimated to have expanded by 3.8% at 0.2% over the same period. The findings provide trends as manifested over the period 2010-2017. The of the LED divisions and members of the mayoral in 2017, compared with just 2.3% in 2016. Gross fixed unemployment rate has risen steadily from a level of 2.1 INTRODUCTION council in charge of LED in addition to the two FGDs capital investment is expected to pick up significantly in emerging and developing economies, but also in 24.6% in 2010 to 27.8% in 2017. The Gini coefficient of his chapter presents an overview of the findings at provincial and national level - attended by officials developed economies. South Africa, though declined from 0.70 in 2006 to 0.67 in emerging from the situational analysis on trade of government departments, trade and investment 2014, it is still one of the highest in the world. As a result, promotion agencies, chambers of business and Tand investment initiatives at local government Secondly, policy factors showing that in recent months, South Africa remains trapped in a cycle of high inequality SALGA. level in a South African project. The study undertook a significant tensions have emerged in global trade, and slow job creation. situational analysis to compare and contrast the best encompassing several major economies. The resultant Prior to presenting the findings, it is important to and least performing metropolitan, secondary cities/ atmosphere of uncertainty could cause multi-national The rate of annual economic growth has also acknowledge the external environmental factors and small town regeneration programme sites and rural enterprises (MNEs) to cancel or delay investment continuously declined from 2.9% in 2010 to 1.3% in public sentiment that prevailed during the time of presidential poverty nodes municipalities, namely, decisions until the trade and investment climate is more 2017. Growth was driven by sectors mainly agriculture, executing the study. Highlighting these factors from CoJ & NMB metropoles, Rustenburg and King Sabata stable. The Tax Reform Bill adopted in the United States forestry and fishing followed by mining and quarrying as the outset acknowledges that certain dynamics could Dalindyebo secondary cities/small town regeneration in December 2017 will also have a significant impact well as finance, real estate and business services. have influenced the views of the survey participants. site, and Zululand and uMzimkhulu rural presidential on global FDI stocks and flows. Thirdly, MNE and IPA For instance, during the survey period, there was poverty nodes municipalities respectively. expectations where the global economic upswing and Gross Fixed Capital Formation (GFCF) is an indicator the presentation of the Medium Term Expenditure short-term positive outlook have, for now, inspired of “net” investments in fixed assets by government, Framework by the Minister of Finance in October 2018, The first section of the chapter presents the results of optimistic spending plans among MNE executives. public enterprises and private businesses. It is usually an but also the delivery of the state of the nation address the analysis of secondary data sourced mainly from Almost 80% of the executives surveyed reported plans indicator of investor sentiment in a country. in February 2019 and thereafter the budget speech by the Quantec Easydata Base standardised regional to increase investment in the coming year. Top MNEs the Finance of Minister. If they foresee strong future growth (2010-2015), there will data 2017, Municipal IQ hot spots monitor 2018, Cities and those operating in tech sectors, declared above- be strong growth in GFCF as businesses, for example, Network 2017, and Auditor General’s report MFMA average spending intentions, suggesting that they Likewise, there was an institution of a few commissions foresee using part of their cash reserves. buy fixed assets in order to cope with future increases 2016/17. The second section of the chapter discusses of inquiry by the Presidency. These include the Nugent in demand. Low GFCF numbers (2015-2017) indicate the analysis of primary data gathered from face-to-face Commission of Inquiry into the South African Revenue The findings confirm that the developed countries’ sluggish economic conditions and a lack of investors’ interviews conducted among 14 municipal officials Services (SARS), the extension of the tenure of the relative importance as suppliers in international markets confidence in the future prospects of South Africa. and councillors principally from the local economic Zondo Commission of Inquiry into State Capture, the is declining. Still though, they account for about half of divisions in addition to members of the mayoral council Mpati Commission of Inquiry into the Public Investment the value of exports of goods and about two thirds of Capital stock is the total value of plant, responsible for LED. The chapter winds up with the Corporation and the Mokgoro Commission of Inquiry exports of services. LDCs’ contribution to world trade equipment and other assets utilised in the presentation of the results of the qualitative research into the affairs of the National Prosecuting Authority. remains minimal, although some increases in exports South African production process. The findings of two FGDs the first held on 18 October 2018 and the Although this report does not aim to measure the and imports of these countries have been recorded over confirm that the South African capital stock grew second on 12 February 2019 in the East London and impact of these external factors, it acknowledges the past decade. at a rate 19.4% from 2010 to 2017. According Pretoria SALGA regional and head offices respectively. that these external influences are important when The analyses are presented by the different. These contextualising and interpreting the outcome of the Global FDI flows fell by 23% in 2017, to $1.43 trillion to the Harrod Domar model, higher economic include secondary data, primary data from the face-to- situational analysis on trade and investment initiatives from a revised $1.87 trillion in 2016. FDI flows fell sharply growth leads to increased savings and increased face interviews with municipal officials and councillors at local government level in South Africa. in developed economies and economies in transition investment resulting in higher capital stock.

26 27 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

depressed international commodity prices, soft demand from China and the onset of the drought. This resulted in weaker consumer demand, persistent subdued business and consumer confidence levels.

In terms of exports as a percentage of the gross value added, a far higher percentage of gross value added of CoJ than NMB is exported. For this reason, the economy is highly impacted by depressed international commodity prices, soft demand from China and the onset of drought as mentioned in the previous paragraph. The highest exports of the CoJ are metals, metal products, machinery, and equipment followed by petroleum products, and coal. The NMB mainly exports metals, metal products, machinery, and equipment followed by transport equipment and agricultural The trade balance, also known as the Balance of Trade percentage points over the period 2010-2017. The products. The demand for these exports were vulnerable (BoT), is the calculation of a country’s exports minus its NMB metro holds a population with more unequitable to low international commodity prices and drought in the imports. The balance of trade is the largest component distribution of income than the CoJ. The inequality is case of agricultural products. of a country’s balance of payments. A surplus, when showing a decline in both metros with a faster declining exports exceed imports, is favourable. A deficit is trend in CoJ than in NMB. The CoJ’s highest imports comprise metals, metal the opposite. products, machinery, and equipment followed by The CoJ exhibits a far higher annual economic growth transport equipment and petroleum products. The NMB South Africa experienced an unfavourable balance trend than the NMB for the period 2010-2017. Both metro imports are mainly furniture, transport equipment of trade between 2012 and 2015 recovering slightly metros are exhibiting declining growth rates with a and metals, metal products, machinery, and equipment. thereafter. This was mainly owing to depressed higher declining rate registered in NMB than CoJ. The The similarity between the products imported and international commodity prices, soft demand from China CoJ economy is driven by finance, insurance, real exported signifies the role of the regional hub played by and the onset of the drought. estate, and business services followed by the general South Africa. government sector and manufacturing. Likewise, NMB Direct investment, more commonly referred to as economy is driven by finance, insurance, real estate, FDI, refers to an investment in a foreign business and business services followed by manufacturing, 2.2.3.2 Secondary cities and small city enterprise designed to acquire a controlling interest in wholesale and retail. regeneration programme trade and this enterprise. Portfolio investments are investments investment trends Rustenburg (RSB) & in the form of a group (portfolio) of assets, including The CoJ has a more highly educated population King Sabata Dalindyebo (KSD) transactions in equity securities, such as common stock, than NMB with a higher proportion of the population Rustenburg exhibits a far higher population than King and debt securities, such as banknotes, bonds and possessing higher education qualifications but Sabata Dalindyebo. RSB population has grown by debentures. 2.11, since 2009 South Africa has mainly lower with primary level qualification. This translates 20.4% between 2010 and 2017 compared to KSD at been dependent more on portfolio investment and less into higher opportunities for employment, income, 1.8%, which is more than ten times the growth rate. In on FDI for its aggregate annual inflows. In terms of FDI consumption, and investment. 2.12, South Africa provides investment mainly through terms of unemployment, KSD presents a persistently portfolio and other investments to other countries. CoJ population has a far higher consumption higher unemployment rate than RSB of an annual expenditure trend than NMB increasing at divergent average of about 20% points over the period 2010-2017. 2.2.3 Municipal Trade and Investment Trends rate post 2017. In CoJ community services, general RSB holds a population with more equitable distribution This section presents the comparative results of the government, finance and insurance are the leading sectors in offering employment while in NMB, the leading of income than KSD. The inequality is showing a decline best and least performing secondary data analysis of in both secondary cities with a faster declining trend the sample of selected metropolitan, secondary cities/ sectors are wholesale and trade, community services, finance, and insurance. The CoJ has a far higher level of in KSD where the trajectory is showing a possibility small town regeneration and rural presidential poverty of convergence in the short-term. RSB registered an nodes in terms of trade and investment. gross fixed capital formation than NMB. This indicates that the CoJ has more favourable economic and social erratic economic growth trajectory over the period fundamentals are in place to attract investment in terms of analysis given that its economy is dominated by 2.2.3.1 Metropolitan municipalities - CoJ & NMB of direct and portfolio capital flows. platinum production and the associated depressed According to the results of the analysis, the CoJ exhibits international prices. a far higher population than NMB Metro. The CoJ The CoJ total fixed capital stock has grown steadily population has grown by 22.8% between 2010 and by 20.6% since 2010. The NMB fixed capital stock Nevertheless, RSB exhibited a higher annual economic 2017 compared to NMB at 9.1%, which is more than has been flat growing only by 9.5% at half the rate of growth than KSD for four out of the eight years during double the growth rate. the CoJ. The findings indicate that both CoJ and NMB the period 2010-2017. In line with Harrod Domar model, have registered unfavourable balances of trade for the higher economic growth supports increased savings NMB presents a persistently higher unemployment greater part of the period 2010-2017. The trend is in line resulting in increased investment and a higher capital rate than CoJ, higher annually on average by seven with the national trajectory which was mainly owing to stock. RSB economy is driven by mining and quarrying

28 29 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

followed by finance, insurance, real estate, and an unfavourable trade balance for five consecutive important for boosting both business and consumer ZLL has a far higher level of gross fixed capital business services and wholesale and retail trade. On years 2010 to 2014 thereafter turning positive. A far confidence but also attract, retain and sustain trade formation than UMZ and showing and upward growth the other hand, KSD economy is dominated by general higher percentage of gross value added (GVA) of RSB and investment. trend post 2017. On the contrary, UMZ is exhibiting government followed by finance, insurance, real estate, than KSD is exported. For this reason, the economy is a slow to flat growth rate in terms of its fixed capital and business services and wholesale and retail trade. highly impacted by depressed international commodity 2.2.3.3 Rural presidential poverty nodes trade formation. This indicates that ZLL has more favourable prices and soft demand from China. and investment trends - Zululand (ZLL) & fundamentals in place to attract investment in terms of The RSB municipality has a more highly educated direct and portfolio capital flows. The ZLL total fixed uMzimkhulu (UMZ) population than KSD with a higher proportion of the The highest exports of the RSB are platinum group capital stock has grown steadily by 25.0% since 2010 population possessing higher education and high school metals followed by gold, and other metallic minerals. Zululand District Municipality exhibits a far higher but the UMZ fixed capital stock has been growing qualifications but lower with primary level qualification The KSD Municipality mainly exports petroleum population than uMzimkhulu Local Municipality. ZLL slightly higher by 28.8% though from a lower base. ZLL compared to KSD. This translates into higher products, chemicals, rubber, and plastic followed population has grown by 7.8% between 2010 and has registered a favourable balance of trade for the opportunities for employment, income, consumption, by furniture and other manufacturing. The demand 2017 compared to UMZ at 11.8%. UMZ presents a entire period of 2010-2017 almost equal to the exports and investment for the RSB population.Likewise, the for these exports was vulnerable to low international persistently higher unemployment rate than ZLL of owing to the very low annual imports. On the contrary, RSB population has a far higher household consumption commodity prices. an annual average of about seven percentage points UMZ achieved an unfavourable trade balance for two expenditure trend than KSD increasing at a divergent higher over the period 2010-2017. Likewise, ZLL held a out of the eight years the rest were favourable. rate post 2017. In RSB, mining and quarrying and The findings show that the RSB’s highest imports population with more unequitable distribution of income community services are the leading sectors in offering comprise metals, metal products, machinery, and than UMZ from 2006 up to the end of 2009. The trend A far higher percentage of gross value added of ZLL employment while in KSD municipality, the leading equipment followed by food, beverages and tobacco reversed as from 2010 with ZLL registering a higher than UMZ is exported. Given that ZLL exports mainly sectors are wholesale and trade, community services, and electrical machinery. The KSD imports mainly metal equitable distribution of income. Most importantly, gold, the economy is highly impacted by depressed finance, and general government. products, machinery and equipment followed by wood, the findings depict that both rural presidential poverty international commodity prices and soft demand from paper, publishing, and printing and transport equipment. nodes are experiencing an improvement in the overall China. The highest exports of the ZLL are gold followed The findings indicate that RSB has a far higher level of income distribution with that of ZLL improving faster by petroleum products and metals, metal products gross fixed capital formation than KSD but registering RSB allocated on average 13.1% of the total budget than UMZ. and machinery. The UMZ mainly exports metals, metal a declining trend. This indicates that RSB has had for during the period 2010-2017 to capital expenditure. On products, machinery and equipment followed by food, now more favourable fundamentals in place to attract the contrary, KSD allocated an almost double proportion Both ZLL and UMZ registered an erratic economic beverages and tobacco. The demand for these exports investment in terms of direct and portfolio capital of 24.3% of the total budget to capital expenditure growth trajectory over the period of analysis. However, were vulnerable to low international commodity prices. flows. The decline in the flows may be indicative of the during the same period. However, given that the UMZ exhibits a higher annual economic growth than dominance of the sunset mining and quarrying sector in quantum of the RSB municipality is far greater the value ZLL for five out of the eight years during the period ZLL’s highest imports comprise metals, metal products, its economy. of the capital value allocation is far higher than that of 2010 - 2017. Both ZLL and UMZ economies are driven machinery, and equipment followed by petroleum KSD in real terms. by general government followed by wholesale and products. The UMZ also imports mainly metals, metal The RSB total fixed capital stock has grown steadily retail and thirdly by finance, insurance, real estate, and products, machinery, and equipment in addition to by 17.5% since 2010. The findings show that the KSD The findings reveal that only one of the seven audit business services as reflected by the annual gross value textiles, clothing and leather goods. The similarity fixed capital stock has been growing slightly higher by opinions received by RSB during the period 2010 to added (GVA). The ZLL municipality has a more highly between the products imported and exported signifies 21.2% though from a lower base. RSB has registered 2017 was a disclaimer while three out of the seven educated population than UMZ with a higher proportion the role of the regional hub played by South Africa. a favourable balance of trade for the entire period of received by KSD were disclaimers indicating existence of the population possessing higher education and The ZLL Municipality allocated on average 48.7% of 2010-2017 almost equal to the exports owing to the of better internal controls in RSB than in KSD over the high school qualifications but lower with primary level the total budget during the period 2010-2017 to capital very low annual imports. The KSD municipality achieved period under review. The governance indicators are qualification. This translates into higher opportunities for expenditure, while UMZ allocated a proportion of 33.0% employment, income, consumption, and investment. of the total budget to capital expenditure during the same period. The ZLL District Municipality population displays a far higher consumption expenditure trend than UMZ In terms of governance, both ZLL and UMZ received increasing at divergent rate post 2017. In ZLL wholesale unqualified audit opinions for the seven years under and retail, general government and community services review indicating existence of almost similar level of are the leading sectors in offering employment. In internal controls in the rural presidential poverty nodes. UMZ, the leading sectors are also general government, The governance indicators are important for boosting community services, wholesale, and retail as depicted in both business and consumer confidence but also figure 2.50. attract, retain and sustain trade and investment.

2.3 SAMPLE DISTRIBUTION OF MUNICIPAL OFFICERS SELECTED FOR FACE-TO-FACE INTERVIEWS SALGA selected sample consisted of six municipalities. The study expected to interview officials from the LED departments in the selected municipalities. A total of 16 officials were targeted but 12 were interviewed following non-response from the CoJ.

30 31 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

leads to duplication of efforts and competition among and investment; SALGA must have technical skills to Zoning in the municipality is done when municipality 2.4 RESULTS OF municipalities. However, there is collaboration with support municipalities in trade and investment; address gets applications; it is not proactive to promote trade Sara Bartman District Municipality (farming area) on restrictions in municipal by laws and regulations; assist and investment. The Environmental Impact Assessment THE TRADE AND agribusiness opportunities. For example, Sara Bartman rural municipalities to spend capital budgets; and ensure (EIAs) legislation empowers provinces and national supplies agriculture produce, NMB focuses on agro- municipalities provide infrastructure. departments. Therefore, municipalities must be given INVESTMENT FACE-TO- processing to complement each other. Municipalities more powers to approve EIAs. should not compete for the same sectors, i.e. Grain Port The main entry points considered by NMB were through FACE INTERVIEWS IN in NMB is competing with East London. facilitation of the promotion of company innovation The LED Unit of the municipality has the following in trade and investment via appropriate by-laws skills: Economist, Business Management and Statistics. MUNICIPALITIES The Municipality has an LED strategy which is currently There is a plan to have an Eastern Cape export week without compromising socio-economic objectives of 2.4.1 NMB Metropolitan Municipality facilitated by Eastern Cape Development Corporation government; and transit beyond co-ordination function being reviewed to include sector strategies, Integrated (ECDC) to involve all municipalities in the province. and seek authority to enforce research findings and Master Plan with Catalytic Projects. The Catalytic The Nelson Mandela Metro has identified several There is a need to for NMB to link with the Department proposals in trade and investment. Projects Committee was established recently to challenges that have a negative impact on trade of Trade and Industry (dti) and Invest South Africa (ISA) fast track implementation of projects. However, the and investment. The EIAs are regulated and have a by attending trade missions. With regard to Investment The SALGA key strategic partners in LED Unit does not have the capacity to do project long turn around approval process which affects/ Missions, there is no proper coordination. The working providing support to municipalities due diligence, structure and package projects. The delays investments decisions in the municipality. The relationship with business chambers and ECDC must municipality appoints external service providers to procurement processes for acquisition of land by be improved. NMB is currently engaging the Chamber, Several key partners were identified by NMB as perform these functions. prospective investors are cumbersome and they slow SEZ and ECDC to have a coordinated approach to follows: provincial government departments of trade and investment in the municipality. The by-laws investment promotion. The ease of doing business is local government and economic development; and The municipality does not provide incentives to linked to zoning for specific investment sectors are not coordinated by the Economic Development Department national government departments of trade and investors. There is a draft incentive policy which will clear in terms of which areas of land are earmarked in the municipality. industry, basic and higher education, small business be presented to Council on incentives which includes for agriculture, manufacturing etc. in order to attract enterprises and national treasury. service rebates and rental holidays. The municipality is investments speedily. A city specific one stop for ease of doing business will attracting 100% local investments. However, there is no be established. The NMB was not invited to participate FDI recorded by the municipality in the last Medium Term In terms of institutional capacity, the NMB has a at the October 2018 Presidential Investor Conference. Expenditure Framework (MTEF) period. The economic marketing and industry specialist to facilitate trade and The NMB has dedicated infrastructure or market stalls sectors promoted by the municipality for investment investment. The other expertise is outsourced as and for SMMEs in designated areas. The infrastructure is are Agriculture, Tourism, Mining & Beneficiation and when required depending on the nature of the projects located across the metro in order to be closer to the Education. The municipality was not invited to the being pursued by the Metro. The Metro has an IDP, markets, i.e. city centre and townships. Presidential Investment Conference in October 2018. Economic Growth and Development Strategy and a The tribal authorities and the mines have land that can Spatial Development Strategy to drive investments. The NMB is not paying SMMEs within 30 days owing to be used to attract investments in the municipality and cash flow challenges and lack of supporting documents the private sector can invest in sectors identified by the The budget for facilitating Trade and Investment in the from SMMEs. This is affecting the cash flow of the municipality. The municipality must have a dedicated NMB is inadequate. As a result, the Metro is unable to SMMEs and the sustainability of their businesses. 2.4.1.2 The roles envisaged for the SALGA key function with appropriate skills to facilitate trade and be implement aggressive marketing initiatives including The Metro is supporting the SMMEs with incubation strategic partners in providing support to investment. The municipality must provide budget for attending trade fairs and investor conferences. The centres for construction, technology and general municipalities trade and investment. Collaboration and partnership with NMB is also lacking on sector specific information and business; market stalls in the city centre and townships; key stakeholders are important for effective trade and National government departments must set trade and capacity to structure and package investment projects. Initiative to organise informal traders; and training and investment function. investment policy and ensure that it is cascaded and development courses for SMMEs at the Business Place implemented at provincial and local government level. In order to attract and retain investments, the NMB (Incubation Centre). The Bojanala District Municipality supported the provides incentives to investors through subsidisation municipality by funding the LED strategy. In future, National departments should identify skills required by of rates, taxes and rental, i.e. subsidisation of rates and According to the NMB Metro, the following activities the district and municipality must do joint investment now capacity municipalities and work with the districts taxes for three years for a maximum of R1 million and are the major benefits of the municipality trade and promotion missions, the district must support to warehouse those skills in order to provide them to rental subsidy of buildings for three years in all industrial investment programmes. local municipalities with capacity to drive trade zones for a maximum R1 million for three years. In the local municipalities on a shared service basis. and investment and must leverage resources of all last MTEF period, the NMB has attracted about 60% 2.4.1.1 The envisaged role of SALGA in municipalities in the district. Currently in the district, local investment and 40% FDI. Investment promotion agencies should work towards there is no cooperation; municipalities are competing supporting municipalities in trade and co-ordinating investment to municipalities based on the for investments. Municipalities can cooperate on border municipality competitive and comparative endowments. The municipality is promoting the following economic investment and the key entry points type investments, i.e. provision of bulk infrastructure for sectors for investment: Automotive, agro-processing, The envisaged role of SALGA in trade and investment the benefit of all municipalities in the district. large manufacturing - pharmaceuticals, chemicals, as proposed by NMB is as follows: 2.4.2 Rustenburg Municipality – Secondary City clothing and textiles, services sector - film and business Rustenburg Municipality does not have a trade and There are SMMEs market stalls in the district and process outsourcing, ocean economy and tourism. SALGA can play a role by addressing the identified investment function; it has an LED Unit. According to they are well located in the taxi ranks and in shopping gaps in trade and investment, including facilitating the municipality, the supply chain process impacts centres with good access to markets. The municipality In terms of collaboration with surrounding municipalities the review and development of municipal by-laws and negatively on trade and investment more especially is planning to build market stalls in other locations on trade and investment, there is no formal regulations and to build capacity in areas where there is on unlocking land for investments. There is red tape in or wards to increase access. The SMMEs in the collaboration with surrounding municipalities which no technical expertise in the municipalities to drive trade the release of land in the municipality for investments. municipality are not paid within 30 days, even the mines

32 33 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

in the area pay SMMEs in 90 days. This is impacting 2.4.3 King Sabata Dalindyebo (KSD) 2.4.3.2 The SALGA key strategic partners in The local municipality was not invited to participate negatively on the cash flow of the SMMEs. Rustenburg Municipality – Secondary City and providing support to municipalities in the Presidential Investment Conference in October Municipality itself struggles with the cash flow which 2018. The officials are of the view that the establishment makes it difficult to pay in 30 days. According to the Small Town Regeneration Site The SALGA key partners proposed by the municipality of Development Agencies can assist in coordinating Rustenburg Municipality, several activities are the The KSD Municipality has identified the long turn- in this role were home affairs, the South African Revenue regional economic development. However, the Harry major benefit of the municipality trade and investment around times in approvals for zoning applications Services, the dti and the municipalities. Gwala Development Agency is not effective. Currently, programmes. as an impediment to trade and investment in the the district municipality is not playing any role in trade municipality. There is a need to pass by-laws 2.4.3.3 The key roles envisaged for the listed and investment promotion and the coordination of local 2.4.2.1 The envisaged role of SALGA in against land invasions and introduce regulation SALGA strategic partners municipalities on trade and investment. supporting municipalities in trade and of illegal building structures which affects trade The proposed roles of the SALGA strategic partners Municipalities should cooperate with each other and investments in the municipality. In terms of should entail the identification of investment investment and the key entry points to drive investments. However, the problem is that institutional capacity, KSD has an agriculture and opportunities and benefits. SALGA should assist with the The envisaged role of SALGA in trade and investment municipalities in the district are competing for resources tourism specialist, legal and urban planner in the LED formulation of Public Private Partnerships (PPPs) and the as proposed by the municipality: SALGA should not and there is no strong leadership for coordination. The Department. The LED division does not have capacity funding of businesses in trade and investment. establish a trade and investment function; SALGA must to package and structure projects. It relies on external municipality does not own any land. Land is a challenge ensure that LED is a priority in municipalities, and that consultants to package and structure projects. for development in the area which impacts on trade municipalities budget for LED; SALGA does not have 2.4.4 uMzimkhulu Municipality – Rural and investment. There are market stalls in the city the skills and capacity to drive trade and investment; The municipality does not have incentives to attract Poverty Presidential Node centre and townships of the municipality. There are also incubation centres for construction, technology and the district should establish a shared service for trade investments. It relies on government grant funding The uMzimkhulu Municipality is a rural municipality and general business. and investment to support all municipalities; the district to implement job creation projects. The district a presidential node. The municipality relies on grant must provide financial resources for recruiting qualified municipality is not playing a role of coordinating trade funding to implement infrastructure projects and poverty The municipality has initiatives to organise informal personnel, investment promotions; and Trade and and investments in the district. As a result, there is alleviation projects. The municipality does not have Investment Office to be set up at district like a one stop duplication and competition among municipalities traders and training and development courses for capacity to drive trade and investment programmes or SMMEs at the Business Incubation Centre. According shop for investment. on trade and investments. According to the projects. The Municipality has an LED Department which municipality, KSD is a regional centre; they can provide to the municipality, SMMEs are paid within 30 consists of one SMME specialist. days because they drive the local economy of the manufacturing capacity that can benefit other local 2.4.2.2 The SALGA key strategic partners in municipality. The uMzimkhulu Municipality confirmed municipalities in the district. In the last MTEF period, providing support to municipalities The LED Department has developed an LED Strategy, that the following aspects are the major benefits of the municipality has attracted 95% local investment Tourism Strategy, Agriculture Strategy, SMME Strategy the municipality in terms of trade and investment The key stakeholders in the municipality for trade and and 5% FDI. investment are tribal authorities, i.e. Royal Bafokeng - and Informal Traders Policy. The major challenge faced programmes. by the municipality is the lack of funding and capacity to most land owned by tribal authorities; Universities; dti; The municipality was not invited to participate at the Industry; and Rustenburg Chamber of Commerce. implement these strategies. The municipality does not 2.4.4.1 The envisaged role of SALGA in October 2018 Presidential Investor Conference. The have the capacity to structure and package projects. district has dedicated infrastructure or market stalls supporting municipalities in trade and The key roles envisaged for the listed SALGA for SMMEs in designated areas of the municipality. Likewise, the municipality does not have incentives in investment and the proposed key entry strategic partners KSD is not paying SMMEs within 30 days due to cash place to attract investments. The municipality sends points flow challenges and lack of supporting documents The key roles to be played by the partners were letters of appreciation to businesses who pay for The following interventions are the envisaged role of from SMMEs which is affecting the sustainability envisaged to manifest in line with each of the their rates and taxes. It has not attracted any foreign SALGA in trade and investment as proposed by the of the SMMEs. According to the KSD Municipality, constitutional and business mandates of the and local investments in the last MTEF period. The municipality, namely, assist municipalities to acquire the following aspects are the major benefits of the institutions required to support SALGA as strategic municipality is promoting agriculture and tourism state-owned land; development of systems like planning municipality trade and investment programmes. partners for promoting trade and investment in sectors for investment. tools and policies; building capacity in municipalities municipalities. 2.4.3.1 The envisaged role of SALGA in supporting municipalities in trade and investment and the proposed key entry points The officials of the municipality proposed that SALGA should develop capacity of municipalities to effectively participate in trade and attract investment but also to be in a positon to identify and to respond to available opportunities.

The first key entry point should be through the office of the mayor so that the strategy and policy can filter downwards thereafter to officials for execution. The municipality also pointed out that it is important for SALGA to work through local administration and local business structures.

34 35 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

on LED and councillors on LED; creating partnerships competing with King Hlatswayo District Municipality with municipalities and private sector; unavailability of on the same tourism product. District municipalities bulk services which is a responsibility of the district; and must develop the regional economies capitalizing on manage relationship with the Department of Agriculture. their comparative and competitive advantages. About However, the municipality was not in a positon to pin- 81% of the land in ZDM is under the Ngwenyama point the key entry points for SALGA. Trust. However, the arrangement is working between municipality and the Trust in terms of accessing land for 2.4.4.2 The SALGA key strategic partners in development. providing support to municipalities There are SMME market stalls in the district. The role of The partners that were identified by the municipality the district is to coordinate implementation of market were Cogta; Department of Rural Development; Private stalls in the district. However, the market stalls are not sector; Chambers of business; and Eskom. well located because they are hidden behind structures like taxi ranks. The SMMEs in the district are not paid 2.4.4.3 The key roles envisaged for the listed within 30 days and this impacts negatively on their cash SALGA strategic partners flow. According to the Zululand District Municipality, Several key roles for the partners were proposed, the following aspects are the major benefits of the namely, implement infrastructure and LED projects; rural municipality trade and investment programmes. development and the execution of agricultural projects; investment in businesses located in the municipality; and 2.4.5.1 The envisaged role of SALGA in 2.5 THE RESULTS OF THE QUALITATIVE SITUATIONAL provision of energy infrastructure. supporting municipalities in trade and ANALYSIS ON TRADE AND INVESTMENT INITIATIVES investment and the proposed key entry 2.4.5 Zululand Municipality – Rural points 2.5.1 Introduction Presidential Poverty Node In the Eastern Cape, a private sector-led One-Stop- The envisaged role of SALGA in trade and investment as A total of two FGDs were proposed by SALGA, namely, Shop was developed by the East London Business The Zululand District Municipality (ZDM) is located in proposed by the municipality is as follows: Institutional the provincial focus group and the national focus group Chamber to provide information to current and potential the northern part of KwaZulu-Natal Province and is coordination of information through SALGA; SALGA respectively. The provincial focus group discussion was investors. The dti will also be establishing another One- one of the Presidential Nodes. ZDM has an LED Unit, must have information or intelligence on municipalities; held in the SALGA provincial offices in East London Stop-Shop in East London and the group felt that there which is managed by a Development Planner, and SALGA must promote municipalities in trade shows; on 18 October 2018 while the national focus group should be public private sector coordination to avoid the unit also utilises technical expertise like engineers SALGA assists municipalities to review and implement was held on 12 February 2019 in the SALGA head duplication of trade and investment services. from the Technical Department. According to the ZDM, their LED strategies; SALGA assists municipalities Office in Menlyn. The FGDs were conducted under the municipality has the capacity to do project due the facilitation of the Unisa academic staff and the to access funding from sector departments; SALGA The focus group proposed that a standardised guideline diligence, structure and package LED projects. recording of the discussions is presented in this section should have more powers to assist municipalities to must be developed for municipal incentives to ensure of the research report. get support from departments; and SALGA to hold uniformity in municipalities. The municipality has an LED Framework and Strategic departments accountable. The municipality proposed Plan and the Investment Promotion Plan. The district that the SALGA key entry points should entail securing 2.5.2 Composition of the FGDs municipality does not provide incentives to investors; Trade and Investment Initiatives, State and Non-State more powers to assist municipalities to get support As indicated under section 1.3, the qualitative research it believes that local municipalities must provide Actors in the Three Spheres of Government - The Role from relevant government departments but also to hold was conducted after the quantitative research. The incentives. of dti, The dti plays strategic and operational roles in departments accountable. qualitative research was composed of two FGDs trade and investment, that is, bilateral relationships each with a targeted average attendance of eight ZDM does not track the amount of local and foreign with other countries; identification of priority sectors for 2.4.5.2 The SALGA key strategic partners in participants. The two groups entailed provincial and investment; and Develop and manage incentives policy. investment attracted into the district because this is national government officials, representatives of trade the role of local municipalities. The priority sectors of providing support to municipalities and investment development agencies, chamber of Therefore, municipalities must provide an enabling the economy promoted by the district are agriculture, The SALGA key strategic partners identified in the business and SALGA respectively. The FGDs realised environment for investment by providing basic services tourism, mining and business. The district was not province for providing support to municipalities an average attendance of five participants per group (reliable water and electricity and roads). There is limited invited to participate at the Presidential Investment include Departments Of Co-operative Governance and but with the highest attendance recorded within the research capacity in municipalities to benchmark the Conference in October 2018. Traditional Affairs, Economic Development, Tourism and provincial and the least in the national focus group. cost of electricity, availability of land, buildings, etc. Environmental Affairs (ETEA) and Trade and Investment and package the information and projects to present to In terms of the current role played by the district, ZDM KwaZulu-Natal (TIKZN). 2.5.3 Provincial Focus Group – East London investors. identifies catalytic projects and commissions feasibility studies, prepares project briefs and market the entire a. Local and foreign trade and investment legislative 2.4.5.3 The key roles envisaged for the listed b. The Municipality Business Climate, Foreign Trade district to investors. In the future, the district must framework SALGA strategic partners and Investment use MIG funding to implement catalytic projects that According to the Eastern Cape Focus Group, the by- contribute to trade and investment. The key roles to be played by the partners were laws in general are fine in municipalities; the problem There is a lack of capacity in smaller municipalities envisaged to manifest in line with each of the is the lack of enforcement of by-laws. There is a need to attract qualified personnel to drive trade and There are opportunities in tourism that can be constitutional and business mandates of the institutions to review outdated by-laws like by-laws regulating investment. Skills in LED departments must be based exploited if municipalities cooperate. For example, required to support SALGA as strategic partners for hawkers to ensure access to appropriate infrastructure, on the sectors that the municipality has a comparative Zululand District is promoting cultural tourism and it is promoting trade and investment in municipalities. markets, health and safety. advantage in; i.e. tourism and agriculture. The district

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municipalities must target the implementation of shared The most important area of support that SALGA should investment, facilitating exports and investment promotion. services on LED skills. provide in order to assist municipalities attract, retain The dti must focus on identifying sectors where South and sustain trade and investment are: determination Africa has a comparative and competitive advantage. The following technical and institutional capacity are of investment baseline of municipalities in terms of required by a municipality to run an effective trade and available infrastructure, water, electricity, roads and c. The Municipality Business Climate, Foreign Trade investment function: leadership; strategy; economist; land; developing appropriate guidelines and toolkits and Investment marketing; business management; Engineer (Technical); on trade and investments for municipalities, including Trade and investment is not institutionalised in and Chartered Accountants (Finance). incentives and by-laws; assist municipalities to focus municipalities hence there is a limited capacity to drive on their comparative advantages in driving trade and trade and investment. In order to have an effective trade The focus group indicated that government failure to investment, i.e. agriculture and tourism; and ensure that and investment function, the municipalities must have pay within a turnaround of 30 days impacts SMMEs municipalities budget for the LED departments. access to the following skills: strategy; economics; negatively. Small business cannot survive 60 days business management; financial modelling; investment without payment and therefore impacts the ability to The provincial focus group was divided on the question analysis; economic intelligence; environmental function sustainably. as to whether SALGA should establish a trade and scanning; legal; research; engineering or infrastructure; investment function to support municipalities in project management; planning and GIS; governance; One of the challenges is that Small, Micro and promoting trade and investment, where 60% supported asset management. Medium Enterprises (SMMEs) do not follow the correct the idea and 40% were against. It was concluded that procedures when providing services to government, there is a need for an institution to support municipalities It was emphasised by the focus group that a municipality i.e. they must have purchase orders and statutory with trade and investment. However, there was no is not required to have the skills in-house. The skills documents. SALGA can advise SMMEs who do consensus as to whether SALGAis the right institution to can be outsourced by having a database of preferred business with municipalities on the requirements of do it. The group recognised that SALGA has an existing service providers. It is important for municipalities to doing businesses with municipalities. LED function, and the question was how effective has have policies, systems and processes in the Trade the SALGA LED function been to date and does it have and Investment Divisions. Municipalities must also The Envisaged Role of SALGA and the Key the right capacity to take on this extra competence and train officials on trade and investment, i.e. officials Entry Points manage it effectively and efficiently going forward. from the finance, planning, infrastructure departments, The envisaged role of SALGA in trade and investment among others. Trade and investment in municipalities as proposed by the Focus Group is as follows: 2.5.4 National Focus Group – Menlyn should also be a separate unit not linked to economic a. Local and Foreign Trade and Investment development and must be resourced adequately in order • SALGA must ensure that municipalities enforce to fulfil its mandate. by-laws. Legislative Framework According to the national focus group, the spatial • SALGA must ensure that qualified people are Municipalities should offer incentives to investors to planning and land use management act (SPLUMA) appointed in LED departments in municipalities. attract both local and foreign investment. However, the as a legislation has a negative impact on trade and • Municipalities should establish a standard Municipal Finance Management Act (MFMA) is restrictive investment in municipalities. For example, it can framework like the International Standards in terms of the discounts that municipalities can give to take up to 18 months to get SPLUMA approvals. In Organisation (ISO). SALGA should assist the investors on rates and taxes. municipalities, by-laws and zoning impact on trade and municipalities to develop best practice standards investment. The transfer of land is a tedious process. framework informed by ISO international +quality The focus group indicated that the government failure The inability of municipalities to raise own funding using standards to be used as a basis for attracting trade to pay within a turnaround of 30 days impacts SMMEs their own ratings from foreign investors also impacts and investment. negatively; that is, it affects cash flow of businesses trade and investments. • SALGA can assist municipalities to plan and including their sustainability. There is corruption in some of the municipalities where some officials refuse to pay implement infrastructure through capacity building; In order to facilitate trade and investment in invoices of SMMEs on time. • SALGA can assist municipalities to establish municipalities the following must be considered: shared services on LED skills. Government must offer guarantees to enable The focus group proposed that government must • Clarifying the roles of LED departments and municipalities to raise funding on their own; SPLUMA incentivise departments that pay SMMEs on time and municipal development agencies in terms of trade legislation must be reviewed to for instance improve penalise those who are not performing. Performance and investments. turnaround of approvals; municipalities must combine contracts of officials must include payment of SMMEs Economic Development and Planning Divisions for on time. better coordination and execution; and government must streamline processes of alienation of land to d. The envisaged role of SALGA and the key entry reduce the bureaucracy. points The envisaged role of SALGA in trade and investment as b. Trade and Investment Initiatives, State and Non- proposed by the national focus group is as follows: State Actors in the Three Spheres of Government – The Role of dti SALGA should establish a shared service for skills The dti plays an important role in trade and investment required to drive trade and investment;SALGA must by creating a conducive environment for trade and first agree on where the trade and investment function

38 39 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

should be located in the organisation in order to Political influence and ensuring that qualified people function effectively; are appointed in municipalities to drive trade and investment; SALGA assists the dti to implement IPAP SALGA should also understand trade and investment in municipalities; SALGA to do advocacy and build dynamics in municipalities; SALGA must also capacity of municipalities on trade and investment capacitate itself on the understanding of trade and and LED; and Salga to do coordination and resolve investment at international, national, provincial and local challenges facing municipalities on trade and government level; SALGA should play an intermediary investment. The national focus group was unanimous role in unblocking bottlenecks that municipalities face in that SALGA should establish a trade and investment trade and investment, i.e. legislation SPLUMA, MFMA function to support municipalities in promoting trade around incentives; and investment.

SALGA must present their value proposition to 2.5.5 Challenges Experienced During the municipalities on trade and investment. The following Overall Study should be SALGA’s main entry points on trade and investment in municipalities: Secure executive buy in As indicated under section 1.3 of the report, the within SALGA. The executive should take the lead and fieldwork for the survey began in September 2018 drive the initiative internally; The LED Unit and municipal and ended in February 2019. During the course of finance in SALGA should implement the function; The the project, several challenges were experienced LED Unit within SALGA should be capacitated with the that impacted significantly on the duration of these CHAPTER 3: Summary and Recommendations relevant skills on trade and investment; Alternatively milestones namely: create a new and dedicated trade and investment unit; • The six sample municipalities selected are located metropolitan municipality and the NMB as the least The trade and investment unit in SALGA should be in four different provinces. The dispersion of the 3.1 INTRODUCTION performing. The indicators emerging for the best located in the chief executive’s office. locations made bookings and logistics for interviews hapter 1 described the main aim and research performing metro compared to the least performing in with officials onerous creating time overruns on the methodology of the 2018/19 study of the terms of factors impacting trade and investment show The following institutions should be SALGA’s key schedule of the project plan; the following: strategic partners: The dti; SA Cities Network; National Csituational analysis on trade and investment • Inability to secure appointments with municipalities on initiatives at local government level in South Africa. Treasury; The Presidency; Co-operative governance and time impacted the project schedule; • CoJ compared to NMB registered a higher population traditional affairs (COGTA); Private sector; Investors; Chapter 2 presented the findings of the study of a sample size and population growth rate; • Unwillingness of the officials of the CoJ to participate of six municipalities involving secondary data analysis and Organised Business (Chambers, Sector Based • a more highly educated population with a greater in the study rendered the metropolitan category primary data collected among respondents consisting Organisations); MINMECS of Economic Development; proportion of the population possessing higher comparative analysis unfavourable; and Lower than of 12 municipal officials in addition to nine focus and National House of Traditional Leaders. education qualifications; expected average attendance of the FGDs deprived group participants. In this final chapter, the outcome the sessions of inputs from key stakeholders and • a lower level of unemployment; Political influence and ensuring that qualified people of the survey findings as presented in chapter 2 are partner such as the dti and the Industrial Development consolidated and used to recommend strategy, a logical • more equitable distribution of income; are appointed in municipalities to drive trade and Corporation (IDC). investment; SALGA assists the dti to implement IPAP in framework and AIPs for the trade and investment function • higher level of economic growth - even higher than municipalities; SALGA to do advocacy and build capacity in SALGA. The logical framework and AIPs will guide the national growth rate in most of the years; 2.5.6 Areas of Future Research of municipalities on trade and investment and LED; and and provide input into the initiatives to be undertaken • greater level of fixed capital formation and capital SALGA to do coordination and resolve challenges facing Future studies can explore the following research areas: towards the establishment of a trade investment function stock; municipalities on trade and investment. The national The impact of SPLUMA legislation on development in in SALGA, its implementation, performance management, • higher percentage of gross value added exported; focus group was unanimous that SALGA should establish municipalities; the benefits of twinning arrangements monitoring, and evaluation. In addition, there should be a trade and investment function to support municipalities between South African and international municipalities; future engagement with member municipalities and other • higher proportion of the total budget allocated to in promoting trade and investment. What should be the role of Municipal Development key stakeholders on the effectiveness of the trade and capital expenditure; and Agencies and LED Units?; SALGA annual survey on investment function accordingly. • better quality audit opinions as an indicator of better The most important area of support that SALGA should the ease of doing business in municipalities; and governance all of which combined contribute a higher provide in order to assist municipalities attract, retain detailed analysis on the role and approach of other local consumer and business confidence in the CoJ. and sustain trade and investment are: government associations on trade and investments. 3.2 SUMMARY In order to guide strategy and recommend action, the Unfortunately, the CoJ declined to participate in the face- analysis incisively presents the consolidated summary to-face interviews and the web-based primary survey. of results of the study in terms of the quantitative and 2.6 CONCLUSION However, data from the NMB provide a perspective on qualitative analysis. The focus groups were selected and the challenges faced by the metro in performing the trade organised through collaboration between and investment function. These include the following: the Unisa BMR and the SALGA staff. 3.2.1 Consolidated Summary of Findings The discussions were conducted at • Environmental impact assessments (EIAs) are - Secondary and Primary Data regulated and have a long turn around approval the SALGA office premises, facilitated, Quantitative Analysis recorded and transcribed by the Unisa process which affects/delays investments decisions. academic staff. According to the results of the secondary data analysis • The procurement processes for acquisition of land are of the Metros, the CoJ emerges as the best performing cumbersome and they slow trade and investment.

40 41 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

• The by-laws linked to zoning for specific investment have the capacity to package and structure projects; 3.2.2 Consolidated summary of findings - qualitative analysis sectors are not clear in terms of which areas of land the municipality does not have incentives to attract are earmarked, for agriculture, manufacturing etc. in investments; the district municipality is not playing a role order to attract investments speedily. of coordinating trade and investments. Turning to the • The budget for facilitating Trade and Investment trends in the Rural Presidential Poverty Nodes, the trade in NMB is inadequate as well as sector specific and investment performance indicators reflect Zululand Challenges information and capacity to structure projects. The District Municipality as the best and uMzimkhulu Local NMB Municipality reported that it currently attracts Municipality as the least performing node. In this regard, 60% local investment and 40% FDI. the secondary data analysis indicates that Zululand compared to uMzimkhulu did the following: The Secondary Cities and Small City Regeneration • registered a higher population size but a slower Programme trade and investment trends revealed RSB population growth rate; Poor Late planning Poor inter- Political Poor infra- Poor land Outdated Lack of Legislative as the best and KSD as the least performing secondary payments of and governmental • a more highly educated population with a greater interference structure preps by-laws skilled HR hurdles SMMEs budgeting coordination city/small city regeneration programme site. The proportion of the population possessing higher indicators showed that RSB compared to KSD did education qualifications; the following: • lower level of unemployment; • registered a higher population size and population • more equitable distribution of income; growth rate; • lower level of economic growth - but both presidential • a more highly educated population with a greater nodes have the same economic structure dominated Figure 3.1: Summary of the challenges highlighted by stakeholders proportion of the population possessing higher by general government, wholesale and retail; education qualifications; • the sectors are also the greatest employer of the Participants in the Focus Group discussions reported discounts that municipalities can give to investors on • a lower level of unemployment; working population; that the by-laws in general are acceptable in rates and taxes. • more equitable distribution of income; municipalities. The problem is the lack of enforcement • greater level of fixed capital formation and capital of by-laws by municipalities. It is important to review The national focus group was unanimous that SALGA • higher but erratic level of economic growth - stock; dominated by mining while KSD economy is driven by outdated by-laws like by-laws regulating hawkers establish a trade and investment function to support • higher percentage of gross value added exported; and general government; to ensure access to appropriate infrastructure and municipalities in promoting trade and investment. • presents a more favourable balance of trade than UMZ markets, health and safety, and fire protection because On the other hand, the provincial focus group was • greater level of fixed capital formation and capital over the entire period of 2010-2017 but similar quality there are no fire engines in some of the municipalities. divided on the question as to whether SALGA should stock; audit opinions as an indicator of good governance. SPLUMA legislation has a negative impact on trade establish a trade and investment function to support • higher percentage of gross value added exported; and However, Zululand is not tracking investments and investment in municipalities owing to the related municipalities in promoting trade and investment, where • a more favourable balance of trade than l

42 43 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

• Developing appropriate guidelines and toolkits on promotion agencies were more common in smaller to some extent also be reflected in the performance trade and investments for municipalities, based on 3.3 RECOMMENDATIONS economies and by reference small sized entities. indicators used by the business unit. In this regard, the incentives, bylaws etc. Taking into account the summary of findings, the Integrating investment and trade promotion in a proposed logical framework reflecting the key strategic • Assist municipalities to focus on their comparative following recommendations are presented in terms single business unit could be a rational approach for objectives, key performance indicators and activities. advantages in driving trade and investment, in sectors of the situational analysis on trade and investment SALGA, where financial and human resources can be The targets will be determined through a strategic such as agriculture and tourism. initiatives at local government level in South Africa. The rationalised. dialogue with SALGA management and members of staff responsible for setting up the trade and investment • Ensure that municipalities budget for the LED and national focus group was unanimous and the majority The fact that it generally takes longer to achieve results function to align with targets of other related corporate trade and investment departments. of the provincial focus group also recommended that SALGA should establish a trade and investment in investment promotion than in trade promotion, will objectives already in implementation. • Assist municipalities to acquire state owned land, function to support municipalities in promoting trade and access funding from sector departments and investment. The respondents in the primary research secure political influence in addition to promoting provided input on the envisaged role of SALGA and the 3.4 CONCLUSION municipalities in trade shows. key entry points in supporting trade and investment This study has undertaken the situational analysis of the trade and investment initiatives in the three spheres in the municipalities as summarised above and under 3.2.4 Consolidated Summary of Findings of government. The study has utilised secondary, primary qualitative and quantitative data for a sample of sections 3.2.2 and 3.2.3 of the report respectively. metropolitan, secondary cities and small town regeneration sites in addition to rural presidential poverty nodes in - Key Entry Points of SALGA in South Africa to analyse performance in trade and investment at local government. Supporting Trade and Investment in This recommendation is supported by the case studies Municipalities presented in the literature review under section 1.7.7 The research has determined the status quo, in terms of the current initiatives by the various state and non-state which confirmed that the Local Government Association actors at the different spheres of government on trade and investment promotion. Literature review has also been On a strategic basis, the respondents pointed out that of South Australia with the support of the State conducted to establish international trends and best practice strategy, policy and institutional arrangements for it was important for SALGA to focus on the facilitation Government aims to open up trade and investment trade and investment for the least, developing and developed countries. of the promotion of company innovation in trade and opportunities for Small to Medium Enterprises (SMEs) investment via appropriate by-laws by municipalities by leveraging the South Australia and Shandong As required by the terms of reference, the envisaged role of SALGA in assisting municipalities to address without compromising socio-economic objectives of relationship. Local government will underpin community bottlenecks in trade and investment has been documented in line with the proposals by the respondents and government. SALGA must go beyond the advisory and prosperity by giving small business a competitive participants in the study. This has been followed by the identification of the key entry points for SALGA, the coordination function and seek authority to enforce advantage in China. Furthermore, local government’s definition of the strategic partners and their roles and last but not least the development of a clearly articulated research findings and proposals in trade and investment. role will be to lead and inspire SMEs to grow through logical framework spelling out strategic objectives, key performance indicators and activities for an effective and Institutionally, the first key entry point should be through China engagement; educate SMEs and build their efficient trade and investment function within SALGA. the office of the mayor so that the strategy and policy capacity to engage; support SMEs to create/package can filter downwards to officials for execution. China ready trade/investment opportunities/proposals; build a supported pathway to market pre-qualified/ It is important for SALGA to work through local prepared buyers/investors; and support SMEs convert government and local business structures and to secure opportunities arising. more powers to assist municipalities to get support from departments and to hold departments accountable. Likewise, the Federation of Canadian Municipalities More importantly, SALGA shouldfacilitate a trade and (FCM) advocates for municipalities to be sure their investment office to be set up at each district to perform citizens’ needs are reflected in federal policies and the role of a one stop shop for investment. programmes. FCM builds strong global partnerships and brings local and Canadian expertise to countries Strategic Partnership Establishment around the world. Canada’s municipalities are globally and Management connected. Whether it is promoting two-way trade Research; Knowledge and and investment, tackling global challenges like Data Management climate change or building capacity in developing countries, local expertise is making a real difference Legislative; Policy and By-law around the world. FCM brings Canada’s local voice Review and Advocacy to multilateral networks of municipalities, and ensures that local priorities are the front and centre in Canada’s Capacity Building; Peer International Development Policy, as well as in trade Learning and Technical Support negotiations.

Salga’s Visibility in the Trade The rationale for evaluating an Investment Promotion and Investment Space Agency (IPA) and a Trade Promotion Organization (TPO) is three fold: to assess increase in effectiveness, Intergonvernmental Relations and Coordination improvement in performance and to establish the achievement of better value for money. It has been Figure 3.2: Summary of the key strategic issues stated in the report that combined trade and investment

44 45 SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa SALGA | A Situational Analysis on Trade and Investment Initiatives at Local Government Level in South Africa

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46 47 SALGA National Office Menlyn Corporate Park , Block B 175 Corobay Avenue, Cnr Garsfontein and Corobay, Waterkloof Glen Ext 11, Pretoria Tel: 012 369 8000