THE PROMOTION OF LOCAL ECONOMIC DEVELOPMENT IN THE CHRIS HANI DISTRICT MUNICIPALITY
by
NOXOLO LINDIWE NQWAZI
Submitted in fulfillment of the requirements for the degree of
MASTER IN ART IN DEVELOPMENT STUDIES in the Faculty of Business and Economic Sciences
at the
NELSON MANDELA METROPOLITAN UNIVERSITY
January 2017
Promoter: Dr N.S. Dyubhele
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ACKNOWLEDGEMENTS
I would like to take this opportunity to express my gratitude to the people indicated below for their support, cooperation and guidance in the completion of this study.
I am indebted to Dr Dyubhele and Professor Ncwadi for their guidance, mentorship and constructive criticisms; it is their unwavering commitment that built the solid foundation that this study sits on.
I also appreciate the support of Dr Siyabonga Smayi of Coega Development Corporation during the gathering of information.
Sincere thanks for their valuable contributions: Chris Hani District Municipalities (including all eight municipalities) and its officials, farmers associations, Chris Hani District Cooperative Development Centre, the Chris Hani Development Agency, National Development Agency, the Department of Trade and Industry for their cooperation and assistance in the furtherance of this study.
Finally, I am indebted to my husband Sthi and my children, Msingathi and Msekeli, for their patience and self-reliance. Their constant inspiration has kept me going during the difficult times of my study. My parents; Mr and Mrs Majija are an inspiration and a shoulder to lean on always; thank you. Lindiswa your support is also acknowledged.
Thank you to the most hardworking member of the family, Chief. Your brightness, constant happiness and general joy can only be described as a lighthouse in the roughest of seas.
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DECLARATION
I declare that
THE PROMOTION OF LOCAL ECONOMIC DEVELOPMENT IN THE CHRIS HANI DISTRICT MUNICIPALITY
is my own work, that all the resources used or quoted have been duly acknowledged by means of complete references, and that I have not previously submitted the dissertation for a degree at another university.
Noxolo Lindiwe Nqwazi
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THE PROMOTION OF LOCAL ECONOMIC DEVELOPMENT IN THE CHRIS HANI DISTRICT MUNICIPALITY by Noxolo Lindiwe Nqwazi
Degree: Master In Art in Development Studies Department: Department of Development Studies Promoter: Dr N S Dyubhele
ABSTRACT Despite the commitment by government to reduce poverty after 1994, poverty is still increasing in rural areas such as the Chris Hani District. This is because development practitioners have not yet developed strategies based on the needs of the communities in order for development to succeed. Local government has to support initiatives by local communities that are economically viable by providing an enabling plan, finance, expertise and infrastructure. It is important that local activities stimulate local economies through local economic development (LED). The Integrated Development Plan (IDP) is a strategic planning document that places emphasis on LED as a key element in reducing poverty.
The primary objective of the study was to obtain a better understanding of how the Chris Hani District seeks to reduce poverty. The aim is to improve the quality of life for communities in the district. LED is perceived as an appropriate intervention that local governments can engage in to improve socio-economic condition. The history of LED has shown that countries that did not provide services in their municipalities failed to succeed in LED compared to those with adequate service delivery.
The study was based on research objectives. The first objective was to identify the constraints to local economic development in the district; the second was to ascertain what can be done to alleviate the plight of the Chris Hani district municipalities. The third objective was to ascertain was has been done to promote local economic development in the Chris Hani district.
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The main finding of the first objective is that there are structural constraints to LED. These constraints such as inadequate and unaffordable basic services hinder the economic development of local communities. Therefore, government has to invest in infrastructure that uses more labour to create job opportunities.
In terms of the second objective the main finding is that community development can assist in alleviating the plight of the Chris Hani district municipalities. Empowerment of communities involves skills and training, education and access to basic services, expertise regarding credit, land and income-generating projects.
The main finding in terms of the third objective is that the district has spheres of economic development such as community and locality development, Special Economic Zones (SEZs) and livelihoods development (agricultural development). This is not unique to the Chris Hani district. In the developing world, focus is mainly on small-scale and community based initiatives, utilizing indigenous skills and seeking primarily to ensure survival.
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TABLE OF CONTENTS
CONTENTS PAGE Acknowledgements 2 Declaration 3 Abstract 4 Table of contents 6 Annexures 139 List of figures 12 List of tables 13 Terms and acronyms 14
CHAPTER 1: THE PROBLEM AND ITS SETTING 1.1 Introduction 17 1.2 Background of the study area 18 1.3 Problem statement 19 1.4 Objectives of the study 20 1.5 Research design and method 21 1.6 The significance of the study 22 1.7 The challenges facing local economic development 22 1.8 Structure of the research project 23
CHAPTER 2: LITERATURE REVIEW AND THEORIES OF DEVELOPMENT 2.1 Introduction 25 2.2 Local Economic Development 25 2.3 Nature and characteristics of Local Economic Development 27 2.3.1 Local values and needs driven 27 2.3.2 Continuous process 27 2.3.3 Driven by local actors 28
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2.3.4 Leveraging Development on Local Resources 28 2.3.5 Requires collaboration, partnerships and co-responsibility 28 2.3.6 LED should ideally be provided using bottom-up approach 29 2.3.7 LED must be guided by LED strategy/plan 29 2.3.8 Systematic competitiveness and LED 30 2.4 Spheres of Local Economic Development 30 2.4.1 Locality development 30 2.4.2 Special Economic Zones 31 2.4.3 Workforce development 31 2.4.4 Enterprise development 31 2.4.5 Community development 32 2.4.6 Livelihoods development 32 2.5 The importance of theories 32 2.6 Classic theories of economic growth and development 33 2.6.1 Rostow’s theory of growth 33 2.6.1.1 Criticism of the stages of development theory 35 2.6.1.2 Rostow’s Theory - Implications for Development 36 2.6.2 Harrod -Domar Growth Model 38 2.6.2.1 Criticism of the Harrod-Domar Growth Model 39 2.6.2.2 Harrod-Domar Model: Implications for development 40
2.7 The Lewis theory of development 42
2.7.1 Criticisms of Lewis’s theory of development 43
2.7.2 Implications for Economic development 45
2.7.3 Application of the Lewis theory of development model in 45
the Chris Hani District context
2.8 Drivers of economic development 46 2.8.1 Legislation 46
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2.8.2 Skills development 47 2.8.3 Entrepreneurship 48 2.8.4 Innovation and technology 49 2.9 Manifestations of economic development 50 2.9.1 Reduction in poverty and inequality 50 2.9.2 Transformation of institutions 50 2.10 Local Economic Development governance 51 2.10.1 Political enablement 51 2.10.2 Market and business enablement 52 2.10.3 Community enablement 52 2.11 Roles of the different spheres of government in LED 53 2.11.1 National government 53 2.11.2 Provincial government 54 2.11.2.1 LED provincial working group 55 2.11.3 Local government 55 2.11.3.1 District Municipality 55 2.11.3.2 Municipality/Metro 56 2.11.3.3 Local Economic Development Agencies (LEDA) 56 2.11.3.4 District Support Teams (DST) 57 2.12 Role of other actors outside government 59 2.12.1 Community 59 2.12.2 Business 59 2.12.3 Non-governmental organisations (NGO) 60 2.13 Summary of the main findings and conclusions 60 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Introduction 65 3.2 Nature of research 65 3.3 Methodology 66 3.4 Rationale 68 3.5 Conclusion 69
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CHAPTER 4: PROMOTION OF LOCAL ECONOMIC DEVELOPMENT IN THE CHRIS HANI DISTRICT
4.1 Introduction 70 4.2 LED development in South Africa 72 4.3 LED: a global comparison 73 4.4 Chris Hani demographic information 74 4.4.1 Population levels 75 4.4.2 Education levels 77 4.4.3 Poverty levels 79 4.4.4 Inequality gap 81 4.4.5 Employment rate 82 4.4.6 Human development index 84 4.5 Basic infrastructure in the Chris Hani District 85 4.5.1 Access to housing 86 4.5.2 Access to sanitation 88 4.5.3 Access to water 89 4.5.4 Access to electricity 90 4.5.5 Access to public services 91 4.6 LED promotion in the Chris Hani District 91 4.6.1 Locality development 92 4.6.2 Livelihoods development 93 4.6.3 Enterprise development 94 4.6.4 Agricultural development 95 4.6.5 Skills Development 98 4.6.6 Special Economic Zones 99 4.7 Overview of the Eastern Cape economy 101 4.8 Agricultural sector analysis in the Eastern Cape 102 4.9 Agricultural resources analysis in Chris Hani District 105 4.9.1 Climate and rainfall 105 9 | P a g e
4.9.2 Temperatures 106 4.9.3 Geology and soils 106 4.9.4 Water resources 106 4.9.5 Contextual and legal environment 107 4.10 Analysis of the Chris Hani agricultural strategies 108 and policies 4.10.1 The Chris Hani district development agenda (CHDDA) 109 4.10.2 The hub and spoke approach 112 4.10.3 The cluster approach 113 4.11 Global agricultural markets overview 114 4.12 Agricultural market analysis in South Africa 115 4.13 Economic performance of CHDM 116 4.13.1 CHDM fixed capital stock 116 4.13.2 Fixed capital stock by economic sector 117 4.13.3 Gross value added (GVA) for Eastern Cape and CHDM 118 4.13.4 Primary sector GVA 119 4.13.5 Secondary sector GVA 120 4.13.6 Tertiary sector GVA 121 4.13.7 Trade analysis 122 4.13.8 Trade balance in CHDM 123 4.13.9 CHDM export value by region 124 4.13.10 CHDM import value by region 124 4.13.11 CHDM export value by commodities 125 4.14 Summary of the promotion of LED in the Chris Hani 127
District and conclusions
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CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction 131
5.2 Summary of findings 132
5.3.1 Conclusions on objectives 132
5.3.2 Conclusions on the identified constraints to economic 132
activities and local economic development in the Chris Hani District.
5.2.1 Conclusions on the plight of Chris Hani District 133 Municipalities. 5.2.2 Conclusions on what has been done to promote local 134 economic development in the Chris Hani District. 5.4 Recommendations 135 5.4.1 Improving LED strategies for the rural poor 135 5.4.2 The provision of funding LED 136 5.4.3 Improving the IDP of the district 136 5.4.4 Livelihood and locality development 137 5.4.5 Enterprise development 137 5.5 Further research of this topic 138 5.6 Limitations of this research 138
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ANNEXURES
CONTENTS PAGE
Reference list 139
LIST OF FIGURES
CONTENTS PAGE
Figure 2.1 Rostow’s stages of growth 33
Figure 4.1 Map of the Eastern Cape and its regions 71
Figure 4.2 Map of the Chris Hani District and its local Municipalities 75
Figure 4.3 Chris Hani District Population Structure: 2012 vs 2016 77
Figure 4.4 CHDM highest level of education: 2002-2012 78
Figure 4.5 CHDM % of people living in poverty in 2012 80
Figure 4.6 CHDM inequality levels: 2012 82
Figure 4.7 CHDM unemployment levels: 2002-2012 83
Figure 4.8 CHDM formal and informal employment by sector 2012 83
Figure 4.9 CHDM Human Development Index 85
Figure 4.10 CHDM Formal dwelling backlog: 2002-2012 87
Figure 4.11 CHDM Sanitation backlog: 2002-2012 88
Figure 4.12 CHDM % Access to water: 2002-2012 89
Figure 4.13 CHDM access to electricity numbers: 2002-2012 90
Figure 4.14 Share of the EC Districts in the Primary Sector, 1996 – 2011 103
Figure 4.15 EC AFF Employment numbers and percentage employment 105
Figure 4.16 The Chris Hani District Development Agenda 109
Figure 4.17 The hub and spoke approach 112 12 | P a g e
LIST OF TABLES
CONTENTS PAGE
Table 4.1 CHDM total populations vs Province and National 2002-2012 76
Table 4.2 CHDM Highest levels of education: 2012 79
Table 4.3 CHDM percentage people living in poverty: 2002-2012 80
Table 4.4 CHDM access to public services 91
Table 4.5 Primary sector GVA contribution by Province: 1995-2011 104
Table 4.6 CHDM agricultural plans and strategies 108
Table 4.7 Key South African Agricultural Statistics, 2012 116
Table 4.8 Proportion of Capital Stock by Sector in CHDM, 1996-2011 118
Table 4.9 Total GVA in CHDM, 1996-2011 119
Table 4.10 GVA for primary sector, 1996-2011 120
Table 4.11 GVA for secondary sector, 1996-2011 121
Table 4.12 GVA for Tertiary Sector in CHDM, 1996 - 2011 122
Table 4.13 Trade balance for Chris Hani District, 2001-2012 123
Table 4.14 Export value by region, 2001-2012 124
Table 4.15 Import value by region, 2001-2012 125
Table 4.16 Exports for top five commodities, 2001-2012 126
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TERMS AND ACRONYMS
Terms and acronyms related to the topic:
AFF - Agriculture, Forestry and Fisheries
ANC - African National Congress
ASGISA - Accelerated and Shared Initiative for South Africa
BRI - Basic Rate Interface
CDC - Coega Development Corporation
CHDM - Chris Hani District Municipality
CHDA - Chris Hani Development Agency
CHDC - Chris Hani District Cooperative Development Centre
DAFF - Department of Agriculture, Forestry and Fisheries
DFI - Development Finance Institution
DTI - Department of Trade and Industry
DM - District Municipality
DOE - Department of Education
DOL - Department of Labour
DRDAR - Department of Agriculture and Rural Development
CoGTA - Cooperative Governance and Traditional Affairs
DPLG - Department of Provincial Local Government
EC - Eastern Cape
ECDC - Eastern Cape Development Corporation
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EC-NDP - Eastern Cape National Development Plan
ECSECC - Eastern Cape Socio Economic Consultative Council
EPZ - Export Processing Zone
FCS - Fixed Capital Stock
FDI - Foreign Direct Investment
GDP - Gross Domestic Product
GDS - Growth and Development Strategy
GIS - Geographic Information System
GVA - Gross Value Addition
HDI - Human Development Index
ICT - Information and Communication Technology
IDP - Integrated Development Plan
IDZ - Industrial Development Zone
IMD - Institute for Management Development
IMF - International Monetary Fund
IPAP - Industrial Policy Action Plan
LED - Local Economic Development
LM - Local Municipality
MFMA - Municipal Finance Management Act
MDG - Millennium Development Goal
NDP - National Development Plan
NEMA - National Environmental Management Act
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NEMWA - National Environmental Management: Waste Act
NGP - New Growth Path
NGO - Non-Governmental Organisation
PFMA - Public Finance Management Act
PRI - Primary Rate Interface
SDP - Spatial Development Plan
SDZ - Sector Development Zone
SOE - State Owned Enterprise
USDA - United States of America Department of Agriculture
WWTW - Water Waste Treatment Works
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CHAPTER 1
THE PROBLEM AND ITS SETTING
1.1 Introduction All over the world, local economic development (LED) is regarded as the main driving force for reducing poverty and inequality, and improving the quality of life of many people (Meyer 2014:1; National Development Agency report 2014:55; Dyubhele 2011: 122-125). This is mainly because it is an ongoing process that is driven by local people (Gibbs and Nel 2007:72). In South Africa, as in other developed and developing nations, LED continues to make a significant contribution to economic activities especially in rural areas. The importance of rural towns and cities meeting the economic and social needs of their society cannot be overemphasised. Development practitioners, academics and government agree that LED plays a critical role in reducing poverty and improving the quality of life. This is critical to the Millennium Development Goals (MDGs) of reducing unemployment and poverty (Kabeer 2003:118).
Socio-economic disparities in societies such as inequality, underdevelopment and inappropriate development policies are some factors that increase poverty (Dyubhele 2011:1-2). Underdevelopment is an economic situation in which there are persistent low levels of employment, high dependence, weak community structures, little or no access to resources and inadequate services (Todaro and Smith 2009:830). It is people living in rural areas such as those in the Chris Hani District that are mostly affected. This is mainly because their quality of life has not improved as they continue to be trapped in increasing poverty.
The South African government and the Eastern Cape government in particular, have developed policies which have not yet enhanced the quality of life of local people (Rodrigues-Pose 2001; Dyubhele 2011:2). These policies have not yet created local economic and social conditions that are conducive to the creation of job opportunities. In fact, poverty, inequality and unemployment are rising. In addition, the government has created welfare oriented development that does not generate sufficient income for local communities (Blakely and Bradshaw 2002; Gender and Development 2007:6; Dyubhele 2011:2).
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Evidence exists that LED is an alternative for sustained and community driven development (Binns and Nel 1999). In fact, development practitioners state that LED originates from unequal economic development (Rogerson and Rogerson 2010:13-14). This situation is not unique to the Chris Hani District. LED tends to relate to survival issues and suffers from a lack of technical expertise and financial power in small rural municipalities (Nel 2001). 1.2 Background of the study area
The Chris Hani District Municipality is category C municipality that is centrally situated in the heart of the Eastern Cape, a linking node to all the regions in the province. It has a municipal executive and legislative authority in an area that includes more than one municipality. The role of a District municipality (Category C) is essentially to ensure the coordination of local municipalities in its area by basically, amongst others, promoting LED. Chris Hani District Municipality is made up of the following eight local municipalities: Emalahleni, Engcobo, Intsika Yethu, Inxuba Yethemba, Lukhanji, Inkwanca, Sakhisizwe and Tsolwana. Lukhanji local municipality, comprising of Queenstown which is a main town and small towns of Whittlesea. This is the home to the District administrative centre. Tsolwana local Municipality, comprising of two peri urban towns; Tarkastad and Hofmeyer. Inkwanca local Municipality comprising of Molteno and Sterkstroom towns and numerous peri-urban and rural settlements. Sakhisizwe local municipality, comprising of Cala and Elliot and numerous peri-urban and rural settlements. Emalahleni local municipality, comprising of Lady Frere, Dodrecht and Indwe and numerious peri-urban and rural settlements. Intsika Yethu local municipality, comprising of Cofimvaba, Tsomo and numerous peri-urban and rural settlements. Inxuba Yethemba local municipality, comprising of Cradock, Middleburg and numerous peri- urban and rural settlements. Engcobo local municipality, comprising of Ngcobo and numerious peri-urban and rural settlements. The Eastern Cape is one of the three rural provinces in South Africa that has had a difficult task of reconstruction. This is mainly because it had to incorporate the underdeveloped areas of the 18 | P a g e
former Ciskei and Transkei with well-serviced areas of the cities in the former Cape Province and Border area. The majority of people in the underdeveloped areas were excluded from full participation in the economy through various laws and regulations. In fact, it is through the apartheid system that the majority of African people were confined to homelands or poverty stricken areas which were the poorest in terms of infrastructure and business opportunities (Chris Hani District Municipality 2015:12). The Chris Hani District has an estimated total population of 804 600. It is largely a rural district municipality with high levels of unemployment and poverty. The majority of the population is dependent on welfare benefits and basic essential services are inadequate (Chris Hani District Municipality 2016: 15). 1.3 Problem statement
Despite 22 years of democracy, rural areas in Chris Hani District do not have the means of earning a livelihood. The district is positioned with a floundering subsistence agricultural sector. This results in agricultural activities that do not generate sufficient income. The Chris Hani district has not received sufficient assistance to improve the quality of life or to relieve the poverty and unemployment in the district (Dyubhele 2011:4).
Poverty remains widespread, visible and deep in Chris Hani District (Chris Hani District Municipality 2014:67). There are some rural areas in the district that are characterised by long walks to rivers, fields and shops to fulfil the basic needs of households, such as health care, food purchasing and preparation, water and wood collection and daily maintenance. However, inappropriate development policies, the lack of provision for basic needs, high illiteracy, high dependency, low human development index (HDI) and lack of access to land are just a few factors that contribute to rising levels of poverty (Statistics South Africa 2011).
LED concentrates on making the local space an attractive space for business to operate, grow and even relocate to. Despite the mandated spatial development framework (SDF) that is a tool to assist Municipalities in spatial planning as the key instrument for locality development; it is done for compliance. The result of this is the lack of basic economic infrastructure as an enabler to economic development. (CHDM 2014)
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Economic activity is decreasing in rural areas. In terms of the national constitution, local municipalities are expected to stimulate local economies through LED (Nel and Rogerson 2005:100). The Chris Hani district is no exception. However, it is rather sad that the district with its weak revenue and inadequate government support is expected to service rural areas (Chris Hani District Municipality 2009:2).
In terms of the Constitution of the Republic of South Africa section 152, municipalities have a mandate to govern, to provide services and to promote economic development. Several pieces of legislation enhance the developmental role of local government, such as the Development Facilitation Act, 1995 (Act 67 of 1995) empowering municipalities to establish statutory land development objectives setting out a clear approach to land development for each municipality. The objects of local government as stipulated in section 152 of the Constitution of the Republic of South Africa, serve as a guideline in fulfilling its role and functions. Whilst Municipalities are tasked with the responsibility of Local Economic development their source of funding especially rural municipalities is the equitable share that is provided through the (Division of Revenue Act of 2015:13). Unlike Metro’s and other urban municipalities rural municipalities comprise of rural small towns and therefore have no other source of funding like rates which makes them dependent on the equitable share which is calculated using the number of population per area.
The plight of rural municipalities such as those in Chris Hani District is made worse by the relocation of rural people to the cities in search of better opportunities. This is confirmed by the numbers of Statistics SA of 2012 where the Chris Hani population dropped by 8% over a decade (2002 – 2012) (Chris Hani District Municipality 2014:17).
1.4 Objectives of the study The main objectives of the study are:
To identify the constraints to local economic development in the Chris Hani District. To investigate the plight of the rural municipalities in the Chris Hani District. To establish what has been done to promote local economic development in the Chris Hani District.
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1.5 Research design and method
In this study, the researcher follows the qualitative research approach. The intent of qualitative research is to answer the questions about the complex nature of phenomena, often with the purpose of describing and understanding the phenomena from the point of view of a participant (Leedy 2005). A qualitative study seeks to discover and understand a phenomenon or a process. Data is collected through document analysis.
According to (Polit and Hungler 2004:233), methodology refers to ways of obtaining, organizing and analyzing data. Methodology decisions depend on the nature of the research question. An analysis of various documents such as the Integrated Development Plan (IDP) of the Chris Hani District was done (Chris Hani District Municipality 2014:15). According to (Creswell 2009), document analysis and case studies provide an in-depth study of situations. This research involves analyzing existing data derived from secondary sources. The goal of descriptive research is to obtain factual, accurate and systematic data. This enables case studies to become more comprehensive, minimize the chance of bias and become more reliable. Moreover, a case study was a valuable and credible method to use for this study because it provided knowledge that can be used by development practitioners to reduce poverty. Case studies do not necessarily reflect the views of the authors but contain available evidence (Newman 2000:251).
A comprehensive literature search was conducted in order to obtain information on how LED is promoted in the Chris Hani District. In this study, the researcher made use of secondary data sources. The secondary research was used to contribute to a better understanding of what can alleviate the plight of the Chris Hani District. Secondary sources do not require the researcher to gather original data instead the researcher uses data that already exists (Collis and Hussey 2003:160). Secondary data was sourced from national and international data searches, publications, and the library of the Nelson Mandela Metropolitan University, inter-library loans, textbooks, newspapers, development journals and from the Local Economic Development directorates.
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Some advantages of using secondary data are; firstly, obtaining secondary data is inexpensive and less time consuming, and secondly, the data may be more accurate than that which is obtained from primary data (Saunders, Lewis and Thornhill 2007: 258). The disadvantages are that obtaining the data may be difficult, and that some of the data that was collected might not be able to answer the research question because the data was collected for different purposes.
1.6 The significance of the study
The aim of the research is to obtain a better understanding of how to promote LED in order to reduce poverty and create employment opportunities in the Chris Hani District. Local economic development is about creating a platform and an environment to engage stakeholders in implementing strategies and programmes that improve the quality of life of the local people. Municipalities have a role in creating an environment conducive for investment through the provision of infrastructure and quality services (German Technical Cooperation (GTZ) 2003:18). The study is significant to development practitioners and policy makers for the implementation of sustainable programmes to promote local economic development. This is mainly because rural municipalities are currently battling with poverty and underdevelopment whilst they are rich with agricultural and non-agricultural resources such as natural resources. This study is also a useful tool to government planning as it provides various strategies that can be used in order to promote LED in rural areas. To be more specific the cluster approach and SEZ concept which is a fairly new LED instrument can be explored in rural areas with a special focus to agriculture.
1.7 The challenges facing local economic development
The challenges facing the rural municipalities include heightened levels of poverty, weak domestic and foreign investment, high unemployment rates, skills gaps, weak manufacturing and processing industries as well as a fragile economic environment. According to GTZ (2008:14), the challenges facing LED in South Africa include:
Weak support mechanisms: The reviewed National Framework on LED seeks to provide a strategic coordination, planning and implementation guide on local economic development however there is no practical implementation of the proposed guidelines; local government is still left to deal with all the challenges and no support from both National and Provincial government. 22 | P a g e
Low skills levels: The annual report of the South African LED states that municipalities are challenged with capacity to deal with LED as these are scarce skills especially in rural municipalities similarly municipalities do not have the financial resources to attract requisite personnel for this function (SA LED report 2012:59). Lack of access to financial and business development services: According to the reviewed (National Framework 2014:52), the issue of funding LED is addressed as the document mentioned a number of LED funding sources whereas the reality is that all these funding sources and agencies require municipalities to meet stringent criteria in order to access funding, such as clean audits which all municipalities are challenged with. Spatial marginalization: The Eastern Cape Socio Economic Consultative Council (ECSECC 2012:15) annual report confirms that the two urban industrial manufacturing centres, Nelson Mandela Bay and Buffalo City municipalities have first-world components, while the rural hinterland, particularly in the former homeland areas of the Transkei and the Ciskei, is characterised by poverty and is generally underdeveloped. Nonexistent entrepreneurial culture amongst black population: "Our country requires an economy that can meet the needs of all our economic citizens – our people and their enterprises – in a sustainable manner," the Department of Trade and Industry (DTI 2003:46).
1.8 Structure of the research project The study is divided into 5 chapters.
Chapter 1 presents the research problem and sets the scene for other chapters. It covers the introduction, background of the study, the problem statement, objectives, methods, significance of the study, challenges facing LED and the structure of the project.
The overview of literature and relevant theories in the field of development are presented in Chapter 2. These theories include classical, growth, structural and needs theories with an interest on their implication on local economic development.
Chapter 3 focuses on methodology issues that support the promotion of LED in the Chris Hani District.
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The promotion of local economic development in the Chris Hani District is presented in Chapter 4. This chapter also provides an analysis of the legislation that guides local economic development. Chapter 5 presents a summary of the most important findings, conclusions and tentative recommendations. The chapter also analyses whether the research objectives were met and makes recommendations for future research.
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CHAPTER 2 LITERATURE REVIEW AND THEORIES OF DEVELOPMENT
2.1 Introduction
According to (Patterson 2008:3), LED is an ongoing process driven by local actors from different areas of the society working together to create a unique advantage for the locality and its firms and businesses. These local actors partner together in order to tackle issues such as market failure, remove bureaucratic complications for local firms and businesses and strengthen the competitiveness of local firms (Department of Provincial and Local Government 2011:9).
Development practitioners agree that local government is in a much better position to find sustainable solutions to meet the communities’ social, economic and material needs in order to improve the quality of life in communities. However, local government is not directly responsible for creating jobs but has to ensure that the overall economic and social conditions of locality are favourable to creating employment. Thus, local economic development is about creating a platform and environment to engage various members in implementing strategies and programmes (Department of Provincial and Local Government 2011: 9).
This chapter explores the literature and relevant theories of economic development. Although there are a large number of development theories, there is no universally accepted development paradigm. LED appears to be among the few realistic development options available to the “poorest of the poor” as part of the process of survival (Binns and Nel, 1999). It focuses on using local resources for the benefit of local people (Hilliard 2000:105). The literature on LED is discussed below.
2.2 Local Economic Development The continuous evolvement of the local economic development concept over the years has somewhat brought about with it the changes to the definition of the term “LED”. It is generally agreed that the practice of local economic development started in cities in the global North during the late 1960s and early 1970s in an environment of global economic restructuring and advancing decentralization (Harvey, 1989), (Valler and Wood, 2010).
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Although LED in the developing and developed countries are directly comparable, in terms of reliance on local control and initiative and addressing of local needs, developed world LED tend to focus far more on issues of large investment, big business support and large project development undertaken by well-resourced local agencies with or without external support (Juddy and Parkinson, 1990).
In the developing world, focus is mainly on small-scale and community based initiatives, utilizing indigenous skills and seeking primarily to ensure survival rather than threatening participate in the global economy (Taylor and Mackenzie, 1992). In the absence of a clearly defined theoretical model, LED strategies tend to resort to the basic features of the approach to specify their content (Rodriguez-Pose, 2001). LED has moved from top-down approach to bottom-up approach. The popularity of LED approaches has risen over the last two decades, fundamentally as a result of what has been perceived as a failure of the top-down approach (Boisier, 1999 and Puga, 2002). While central government are increasingly viewed as too remote and too inefficient to effectively tackle the challenges and opportunities generated by globalization, localities, cities and regions are perceived by some as the most adequate spaces to address global challenges (Scott and Storper, 2003).
There is still debate on the importance of LED strategies as the development compass of local spaces. However, despite the success cases documented by academics and practitioners, the impact of LED strategies remains insufficiently assessed (Crescenzi and Rodriguez-Pose, 2011), (Gordon and Low, 1998), (Markusen and Schrock, 2006 in Corona, 2012). The term local economic development has been used to describe a growing of initiatives, ranging from industrial policy and regional planning to community development, which although part of LED strategy cannot be considered as local economic development (Rodriguez-Pose and Tijmstra, 2005). LED only refers to those development strategies that are territorially-based, locally owned and managed, and aimed primarily at increasing employment and economic growth.
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According to Nel (2001), the characteristics of LED are indicated below and discussed in the next paragraph.
LED is informed by local values and needs LED is an ongoing process LED is driven by local actors (government, business, community, non-governmental organisation and labour) LED in about leveraging on local resources LED achieves better results if guided by a robust and credible LED strategy or plan There is need for collaborations, networking and co-responsibility
2.3 Nature and Characteristics of Local Economic Development
2.3.1 Local Values and Needs Driven The (UN-Habitat 2005) argues that there cannot be genuine local economic development happening in any space without “embracing local values and understanding the needs of locals”. This is also echoed by many practitioners such as (Nel 1994; Cunningham and Meyer-Stamer 2005). LED focuses on the development needs of a region or locality (Rodriguez-Pose and Tijmstra, 2005).
Successful LED is built upon culturally unique aspiration and objectives, rather than striving to impose an inflexible, alien set of ideologies and goal (Gooneratne and Mbilinyi, 1992). Key stand points of LED include local control and empowerment, together with reliance on local initiative and resourcefulness are (Binns and Nel, 1999). The core developmental values of the area must be reflected in its economic vision and mission e.g. local beneficiation, local jobs, integration of social and environmental values.
2.3.2 Continuous Process Local economic development is not an event but an on-going process. LED is about sustainable development in the long term since it takes time to change local conditions, build capacity, organize participatory process and empower stakeholders (UN-Habitat 2005). Local economic development is “a process by which the public, government, Non-governmental Organization
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(NGO) and business work collectively to create a conducive for LED (World Bank 2003), (ILO 2006) and (GTZ 2008).
2.3.3 Driven by local actors Originally, local and regional economic development was almost exclusively an issue of national governments that advocated direct intervention in the economy (UN-Habitat 2005). LED is now more about partnership between various local actors in a locality. These various actors driving LED include the government, business, community, non-governmental organisations and amongst others. LED relies far more on community-based initiatives utilising indigenous skill (Taylor and MacKenzie, 1992).
The involvement of local stakeholders in the development process of their own territory is a prerequisite for sustainable growth. The use of participatory mechanisms decreases the risk of conflicts and fosters social cohesion as getting the local stakeholders around one table through a local forum helps to build trust, encourages innovation and promotes the creation of social networks and activities. Local actors are further likely to have a deeper and better knowledge of local assets, constraints and needs due to their geographical location, networks of contacts and daily interactions. Local economic development approach seeks to listen and learn from communities rather than teach the locals. (ILO, 2006).
2.3.4 Leveraging Development on Local Resources Local economic development specifically aims to stimulate the local economy to grow, compete and create more jobs, in particular making better use of locally available resources (Trag, 2004). Successful local economic development has to be built upon local knowledge, skills and resource (Binns and Nel, 1999). New evidence is now insisting on the need to explore the value chain beneficiation in the light of ensuring maximum beneficiation of locals.
2.3.5 Requires Collaboration, Partnerships and Co-Responsibility LED requires the involvement of the private sector and the civil society and should be based on a participatory process and comprehensive effort in stakeholder consultations even though it may be driven by government in great parts (Cunningham and Meyer-Stamer, 2005).
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Furthermore, LED is mainly a process in which partnerships between local governments, nongovernmental organisation (NGO), community based groups and the private sector are established to manage existing resources, to create jobs and stimulate the economy of a well- defined territory (Helmsing and Egziabher, 2005).
2.3.6 LED should ideally be provided using bottom-up approach Localities, cities and regions are perceived by some as the most adequate spaces to address global challenges while central governments are increasingly viewed as too remote and too inefficient to effectively tackle the challenges and opportunities generated by globalisation (Scott and Storper, 2003). The popularity of local economic development (LED) approaches has risen over the last two decades, fundamentally as a result of what has been perceived as a failure of the top-down approach (Boisier, 1999, Puga, 2002). The majority of writings agree that LED has moved on from the top-down approach to bottom-up development approach.
2.3.7 LED must be guided by LED Strategy/plan Good practice indicates that local economic development must begin with the formulation of a strategy or plan in order to yield better results (World Bank, 2003). A LED strategy/plan is a critical component of any community planning process and ideally a local economic development strategy/plan should form a component of a broader community-wide strategic plan for development (World Bank, 2003).
Strategic planning for local economic development is the cornerstone of sustainable development (UN-Habitat, 2005). LED strategies empower local societies and generate local dialogue (Rodriguez-Pose, 2001). Inclusive participation of communities in the development of their respective LED strategies ensures that they have a say in their development. Until recently, people living in many areas of the developing world had little say in or control over economic activity in their territory and now through the LED strategy development they can have a say in the economic development destiny of their space (Helmsing, 2002).
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2.3.8 Systematic Competitiveness and LED Systematic competitiveness of a territory is defined as the ability of a locality or region to generate rising incomes and improve livelihoods of the people living there. The concept argues that local economies are not inherently local. Even local economies such as rural areas have complex systems. Therefore, an effort to stimulate economic growth in a local economy is bound to involve change. With sustained LED process, the economy will change its level of competitiveness, it’s positioning in regional, national and global markets and ultimately its structure. (Meyer –Stammer, 2008).
LED seems to have a tendency to allocate too many tasks and responsibilities to government and not the market which is the most important factor for successful LED (Meyer–Stammer, 2008). The next section explores the spheres of local economic Development.
2.4 Spheres of Local Economic Development
2.4.1 Locality Development Locality development refers to improvement in the social, economic and environmental conditions in which business operate within a given territory (Hindson and Vicente, 2005). LED in the 1960s through to the early 1980s concentrated largely on place marketing and investment attraction, often linked to various incentives (World Bank, 2003; Rodriguez –Pose and Tijmstra, 2005; Rogerson and Rogerson, 2010). What binds different LED approaches together is the common concern for making local economies to create productive jobs and incomes for local populations (Salazar-Xirinachs, 2008).
In locality development, LED concentrates on making the local space an attractive space for business to operate, grow and even locate to. Planning is the key instrument for locality development. One important role that the government can play to improve the business environment is to reform and streamline the regulatory regime for business activity in a certain area (Hindson and Vicente, 2005). One common form of improving local area is through the introduction of special economic zones
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2.4.2 Special Economic Zones (SEZ) Special Economic Zones (SEZs) are defined as geographically designated areas of a country set- aside for specifically targeted economic activities, supported through special arrangements (which may include laws) and support systems that are often different from those that apply in the rest of the country (World Bank, 1998). They have been used as instruments for attracting foreign direct investment, industrial capability development and reducing unemployment (DTI, 2013; Ndlela, 2013).
2.4.3 Workforce Development Workforce development is a key focus for local economic development. The argument is that low skills level, especially amongst the poor people is a key constraint facing investors. Local authorities can either support the establishment of local training bodies or focus the activities of training agencies in the local area. (Bond, 2002).
Unemployment, the lack of available jobs, the mismatch between skills needed and skills available, as well as high levels of informal employment are all major concerns in many localities. Therefore, workforce development programmes must ensure citizens are better equipped to participate in the economy.
2.4.4 Enterprise Development Enterprise development refers to those actions which help strengthen the economic base and competitiveness of a locality through improving the access of individual and group enterprises to market opportunities and enhance the collective efficiency of groups of connected business. It includes initiatives such as promotion of linkages between local business, emerging entrepreneurs and start-up companies and potential investors from outside, the use of public procurement policies, strengthening of economic clusters and value chains, financial support and non- financial business development services (BDS). (Hindson and Vicente, 2005)
The main tools for LED support from the 1980s to the mid-1990s included provision of business incubators, start-up support and technical support for small and medium sized business (World Bank, 2003). In the later years of LED, business retention, expansion and attraction also came into the spotlight (Rogerson and Rogerson, 2010).
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The area of enterprise development is increasingly taking centre stage within LED, leading it to be declared as the core of LED (Meyer-Stamer, 2008).
2.4.5 Community Development According to (Hindson and Vincente 2005), the term community development refers to measures to improve the health, housing, education, welfare including economic welfare of individuals, households and communities in a locality. It is an inevitable part of economic development brought about by the negative externalities economic development brings to society. Community development encourages social equality by targeting the marginalized and the poor and its target is to strengthen social solidarity, promote self-help and empowerment. Communities supply labour and other inputs to enterprise and are the final consumers of goods and services, so their state of health, education, skills employment, income and creativity of communities are important parts of the opportunities for business (Prugl and Tinkler, 1997).
2.4.6 Livelihoods Development Many communities suffer from inadequate basic infrastructure, services and support for micro- businesses. This is especially true in developing economies, greater parts of Africa. This makes it difficult for businesses to expand beyond subsistence levels. This in turn makes it difficult for society to escape poverty. LED also has the responsibility ensure that sustainable livelihoods are maintained through tools like preferential procurement systems and value chain beneficiation systems amongst others
2.5 The importance of theories Theories are a critical component and basis for any science as they provide a coherent framework for making sense out of any scientific observation. The existing theoretical framework assists researchers to discover the causes to similarities and differences that might exist (Todaro and Smith, 2009). These theories describe tools and strategies for achieving development goals (Dang and Pheng, 2015).
Literature on economic development has been dominated by four strands of thought (classical theories): the linear-stages-of growth model; theories and patterns of structural changes; the international-dependence revolution, and the neoclassical, free-market counterrevolution (Todaro and Smith, 2009). These theories have been chosen for their abilities to be descriptive. 32 | P a g e
2.6 Classic theories of economic growth and development
According to (Todaro 2012:109), development is not purely an economic phenomenon; in an ultimate sense it must encompass more than the material and financial people’s lives to expand human freedoms. Development is therefore a multidimensional process that involves the reorganization and reorientation of the entire economic and social systems. According to (Haines 2000:31), developing economies are not homogeneous. Therefore, variations in the theoretical frameworks applied to different countries and regions can be expected. In the same view, the notion of what constitutes a developing society has in fact widened.
2.6.1 Rostow’s stages of growth (Rostow 1960) took a historical approach in suggesting that developed countries have tended to pass through 5 stages to reach their current degree of economic development. These stages are shown in figure 2.1 below.
Figure 2.1 Rostow’s stages of growth
Source: Google images: Rostow’s stages of growth
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These are:
Traditional society. According to Rostow’s theory as in (Todaro and Smith 2009:111), this stage is characterised by labour intensive agricultural of mainly subsistence farming, little of which is traded. There is limited or no technology hence the low quality resulting in very low labour productivity and little surplus output left to sell in domestic and overseas markets. The focus at this stage is on staple food for consumption and survival. In the Chris Hani district, the primary sector is dominated by the agriculture, forestry and fishing (AFF) industry, as this represents more than 80% of primary sector activities in each Local Municipality (Chris Hani District Municipality 2013:15).
Pre-conditions for take-off. During this stage agriculture becomes more mechanised and whilst produce is used for consumption there is also a surplus which is sold in the market. According to (Dyubhele 2011:17), the surplus produce is due to technological improvements and brings in the much needed profit which provides for savings and investment. At this stage the savings and investment is minimal and contributes a very small percentage contribution to GDP. There are still a lot of constraints such as funding, infrastructure, requisite skills for the subsistence farmers to push them to the next stage of development.
Take-off. At this stage of Rostow’s development though the number of small industries is relatively small the manufacturing industry assumes greater importance. There is a significance growth in the savings and investments which contributes to GDP. It is at this stage that the agricultural industry in the Chris Hani District provides the much needed employment and real income, (CHDM 2015:56). At this stage that there are signs of a dual economy especially in rural agriculture where some farmers are increasing productivity and some experiencing very low productivity. This stage requires the development of both social and political institutions so that the necessary support is provided otherwise there is a possibility of plunging back to subsistence farming.
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Drive to maturity. According to Dyubhele (2011:17), this is a stage where society has effectively applied the range of modern technology to the bulk of its resources. The industry becomes more diverse with more export and import opportunities opening up. The Chris Hani District Municipality (2013:18) indicates that despite being dominated by trade deficits for many years, CHDM has experienced a net positive trade balance over the past 2 years. The highest net positive trade balance was achieved in 2012 (R192 million), significantly higher than the R104 million surplus in the previous year. The trade balance was largely driven by changes in exports for manufacturing and agricultural produce like vegetable products. Age of mass consumption. This stage is characterised by growth in output levels which enable increased consumer expenditure because of the economic surplus (Todaro and Smith 2009). This is in line with the definition of economic growth formula which is EC = C + I + G + NX. It is at this stage that agriculture begins to contribute significantly to economic growth where the shift has moved from subsistence in stage 1 to the tertiary sector where growth is sustained by the expansion of the middle class consumers. People living in the society are offered both abundance and multiplicity of choice (Mallick, 2005:7). Leading sectors of the economy are producing durables and also shift from production of heavy industry such as steel and energy to consumer goods such as cars and computers (Parr, 2001:5). Society has several choices open to it: the extension of social-welfare programs and social overhead capital, striving for world power and prestige, overseas investment involving the export of capital and technical expertise and finally the gearing of economy around particular patterns of consumption. 2.6.1.1 Criticism of the Stages of Development Theory
Rostow’s theory is mechanical in the sense that the underlying motor that propels change is not disclosed and as a result viewed as not based on data from developing countries. It also makes a number of assumptions that all countries progress from underdevelopment to development and that the development of developing countries means adopting western practices. According to (Bradfield, 1988:27) each country has unique historical, cultural, political and economic circumstances.
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Rostow’s theory is also considered to be historical in the sense that the end result is known at the outset and is derived from the historical geography of a developed, bureaucratic society however; (Hanink 1997:414) argues that the past experiences of some countries can be used to predict future experiences of other countries.
One of the criticisms against Rostow’s theory is the overlap between the take-off and the pre- takeoff stages which are very similar and not identifiable properly. In addition, development in South Africa did not take place according to the various stages of Rostow’s economic development model (Dyubhele 2011:19). It was not a smooth process due to many obstacles such as isolation, disinvestment, influx control and discriminatory laws yet according to Rostow’s theory growth becomes automatic by the time it reaches the maturity stage.
2.6.1.2 Rostow’s Theory - Implications for Development The key contributions of Rostow’s theory to development include
Economic Development requires substantial investment in capital
Contemporary literature agrees that investment is a driving force and a prerequisite for economic growth and development. Most of the fast growing economies have experienced high level of capital accumulation or investment (World Bank, 2012). A well-functioning financial system can play a pivotal role in economic development by facilitating capital formation and reducing transaction costs which, in turn, promote economic growth (Levine 1997, Takaendesa, 2005:3) and Odhiambo, 2002:2).
Savings and Capital Formation are central to Economic Growth
Capital accumulation and savings are key ingredients to the process of growth hence development (Todaro and Smith, 2009). There is general consensus in economics that the process of economic growth and saving/capital formation and positively related. Growth requires the mobilisation of long term savings which can be channeled into productive investment. Financial institutions act as intermediaries for this process and therefore the development of a sound financial system (financial deepening) will lead to economic growth (Levine, 1997:679). It is unfortunate that Municipalities do not have the financial ability to long term savings to invest in economic growth rather they depend on grants from Treasury.
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The primary task of the financial sector is to move scarce funds from those who save to those who borrow for consumption and investment (Todaro and Smith, 2003:97). By making funds available for lending and borrowing, the financial system facilitates economic growth.
Adoption of Technology and Economic Growth
While there are still mixed conclusions in the theoretical realm of development studies on the relationship between technological advancement (proxied by investment in Research and Development) and economic growth, there is also little evidence to dispute that there is positive relationship between the two, regardless of the existing paradoxes. The works of (Lucas, 1988, Romer, 1990, Jones, 1992, Howitt, 1992), Grossman and Helpman, 1991) amongst others have all pointed to a significant and positive relationship between technology adoption and economic development, albeit to varying degrees.
Infrastructure is a prerequisite for Economic Development
Infrastructure investment is an important driving force to achieve rapid and sustained economic growth and therefore, it is an important pre-condition for sustainable economic and social development (Srinvasu and Rao, 2013:9). Infrastructural investments in transport (roads, railways, ports and civil aviation), power, irrigation, watersheds, hydroelectric works, scientific research and training, markets and warehousing, communications and informatics, education, health and family welfare play a strategic but indirect role in the development process, but makes a significant contribution towards growth by increasing the factor productivity of land, labour and capital in the production process (Srinvasu and Rao, 2013:9). Infrastructure creates the necessary production facilities that stimulate economic growth, reduces transaction cost and trade cost by implication improving competitiveness while also providing employment opportunities (Sahoo, Dash and Natarij, 2010:5).
The development of economic infrastructure like roads, electricity, water and sanitation creates an enabling environment for development as it attracts investment. This is not done in isolation but as part of the development of the total locality.
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2.6.2 Harrod –Domar Growth Model The Harrod-Domar growth model is based on the work of two authors, (Harrod 1939 and Domar 1946). Although they developed their respective models independently, the assumption and results are basically the same (Greiner, 2004:1). The Harrod-Domar model considers a closed economy in which one homogeneous good, Y is produced and the good could either be used as an investment good, I, or as a consumption good, C. The use of the good was argued to depend on the economic agent intention.
The model postulated that:
All households consume and what is not consumed is saved while firms produce and invest.
All variables are real and many
There are no money markets.
The simplified version of the Harrod-Domer model as depicted in (Greiner 2004:4) begins by denoting Gross Domestic Product (GDP) which equals national income at a time t as
Y (t) = C(t) + I (t)...... (2.1)
Since consumption and savings are supposed to be linear homogeneous function of national income, Cm becomes marginal propensity to consume and Sm becomes marginal propensity to save with Sm calculated as 1- Cm.
Consumption Ct = Cm Y (t) satisfying the function 0< Cm<1 and by implication S(t) = Sm Y(t)
The consistency of Cm and Sm implies that the marginal values equal average values. In addition an equilibrium condition is imposed assuring that investment equals savings in every period.
S=I...... 2.2
S representing savings while I represent Investment
The model went on further to assert that firms intend to realise a certain capital-output ratio depicted by vd with d denoting desired value and calculated as follows: vd =Kd(t)/Y(t) ...... 2.3
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this capital output ratio vd reflects the notion that capital is fully employed if the desired ratio is realised and again brings the equivalence of marginal and average variables.
The model postulated that if the capital-output ratio is constant, then capital will grow at the same rate as GDP. This was argued to be enabled only by investments of firms which take the expected change in national income.
I(t)=K. (t) = vdYe(t)...... 2.4
Where the dot over the variable K gives the derivative with respect to time. Integration of equation 3.4 will yield
K(t)= vd Ye(t) or Kd(t)= vd Ye(t)...... 2.5
To derive the growth rate of this economy
. . . Y (t) = K (t)/v = Sm Y(t)/v holds because I(t) = Sm Y(t) which gives Y (t)/ Y(t)= Sm/v...... 2.6
The growth rate of the capital stock is obtained by
. . K (t)= Sm Y(t) and K(t)=vmY(t) as K (t)/ K(t)=sm/v because I(t) = Sm Y(t) and C(t)=cmY(t) it follows that
. . . I (t)/I(t) =C (t)/C(t) = Y (t)/Y(t)= Sm/v...... 2.7
The Harrod-Domar growth model point out that there exists a growth path which GDP, consumption, the capital stock and investment grow at the same rate which is called the warranted rate of growth (Greiner, 2004:5).
2.6.2.1 Criticism of the Harrod-Domar Growth Model Harrod-Domar models implicitly assume the existence of the same attitudes and arrangements in developed world as in underdeveloped nations, yet in many cases developing nations are lacking factors such as managerial competence, skilled labour, and the ability to plan and administer a wide assortment of development projects (Wagner, Endres and Eichner, 2011:131).
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The Harrod-Domar model assumes that the sufficient conditions required for proper economic growth is a healthy and educated workforce, a good infrastructure (roads, water, electricity etc), political stability, and the existence of working financial institutions such as banks to channel savings into investment amongst others. While these conditions are fulfilled in European countries most of them are limited in developing countries, of which South Africa belongs.
Harrod-Domar models rely greatly on a capital theory of value. While labour can be introduced into the system, the two factors, capital and labour, should always remain in fixed proportion, a highly unrealistic assumption (Akheruzzaman, 2014). Capital accumulation has a dual character that is on the one hand it generates income, and on the other it increases the capacity of the economy ((Akheruzzaman, 2014).). This duality in the character of capital accumulation puts at the centre of the problem of steady growth. The increased capacity may result in larger output and may thus contribute to prosperity. Alternatively it may result in unemployment and thus may become a cause of poverty and sufferings. What actually happen will depend on the behaviour of income ((Akheruzzaman, 2014).
2.6.2.2 Harrod –Domar Model - Implications for Development The key additions, below, were brought forward by the Harrod-Domar model
Economic Growth requires policies that encourage saving for investments. Empirical evidence using cross-country regressions based on the Penn World Table (and other international data) show a significant positive and robust relationship across countries between saving rates and growth, whether interpreted as the effects of investment on growth (Deaton, 2009:01). According to endogenous growth models developed by (Romer 1986 and Lucas 1988), permanent increase in growth can be determined by higher savings and capital accumulation (Odhiambo, 2007:3, Solow, 1956, Modgliani, 1970, Nayaran and Nayaran, 2006, and Singh, 2009). The encouragement to save for investment is one of the similarities between Rostow’s theory and the Harrod-Domar model which is difficult to achieve in rural municipalities. Rural municipalities therefore take longer to develop the requisite economic infrastructure.
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Economic Growth requires technological advancement that lowers capital-output ratio.
Growth accounting shows that GDP per capita growth comes from two main sources; inputs and efficiency (Riddell, 2007:3) The ‘inputs’ can be split into labour (e.g. growth in employment) and capital (e.g. the accumulation of physical capital stock such as machines and buildings), but long term, sustained per capita economic growth tends to come not from increases in the ‘inputs’, but from increases in efficiency, of which the main driver is technological progress (Riddell, 2014:3). (Solow 1956) in his seminal paper argued that technological progress had accounted for 80% of US per capita growth between 1909 and 1949, although more recent studies have suggested a stagnant 45-55% thereafter. In order ensure the growth of the agricultural sector in rural areas they have to invest in technological advancement otherwise it remains at a subsistence level.
For Economies to growth they must save and invest certain percentage of Gross Domestic Product (GDP)
(Riddell 2014) in his analysis of growth, saving and investment looked at how much the world’s biggest economies invested as a percentage of their GDP, and compared this to the countries’ GDP per capita growth rates. Riddell’s study discovered that the countries with higher investment rates tend to have higher GDP growth rates and vice versa. Data collected from a large number of emerging/developing countries revealed that, with higher investment as a percentage of GDP, there is usually and higher growth rates ( Levine, 1997:8 and Odhiambo, 2007). Growth requires the mobilization of long term savings which can be channeled into productive investment (Levine, 1997:679).
2.6.2.3 Placing Chris Hani in the Context of Harrod –Domar Growth Model The Harrod-Domar model postulates that economic growth requires policies that encourage saving for investment. The model went on further to emphasize the critical role of investment in economic growth. Although the metros have very little authority on how to influence saving as it is more of a macro-economic competence, the two metros in the Eastern Cape have made significant efforts to attract investments in the local spaces evidenced by the two special economic zones have been established in the respective metropolitan areas as investment attraction centres. 41 | P a g e
The two special economic zones (SEZ) in the form of Industrial Development Zones (IDZ) are designed to be industrial enclaves providing a competitive leverage to investors. They achieve this by creating an environment which is cheaper and generally more efficient for investors when compared to other industrial parks (DTI, 2014). The Coega Industrial Zones (in Nelson Mandela Metropolitan municipality) is the largest industrial zone project in Africa in terms of capital investment and area and is by some measures the single largest infrastructure development in South Africa post 1994 (DTI, 2014).
The Harrod-Domar growth model also emphasizes the need of technological advancement that lowers the capital-output ratio of production. Although the state still is facing backlogs in infrastructure, significant progress has been made to provide new modern infrastructure and replace waning infrastructure inherited from the apartheid government and efforts are being doubled up to provide more (Eastern Cape Government, 2014). The challenges that still persist and pose a challenge to business in South Africa lie in energy shortages (with Buffalo City municipality complaining of old waning electricity stations), poor roads and rail infrastructure amongst others. The electricity shortage challenge sits at the fulcrum of economic developments as it has potential to grossly affect production.
Both municipalities have a stake in the special economic zones operational in the areas and in a way have the powers albeit minimal to influence the percentage of investment in the zones. The next section discusses the structural theories of development.
2.7 The Lewis theory of development
The Lewis theory (1954) of development is one of the structural theories that focus on mechanisms by which underdeveloped economies transform their domestic economic structures which are traditional subsistence economies transform to modern industrial economies, (Todaro 2011:115). The structural theories believe that underdevelopment is due to under utilisation of resources which arises from structural factors.
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The Lewis model school of thought is one of the structural change models based on the following fundamentals.
An economy starts with two sectors (dual economy); the traditional agricultural economic and the urban industrial sector. Labour in the traditional agricultural areas is under-utilized due to subsistence farming. Labour is therefore released to work as unskilled labour in the industrial sector. The supply of labour to industries increases production which leads to further profits and capital accumulation. Capital invested in sustainable economic development
The primary focus of the Lewis model is on the process of labour transfer and the growth of output and employment in the modern sector (Todaro and Smith, 2009:116). The traditional sector acts as a supplier of labour to modern sector, which by implication would result in high and rising marginal labour productivity due to the zero marginal labour productivity in traditional sector, (Lewis, 1954).
The growth in both labour transfer and employment (in modern sector) was credited to the output expansion requirements of the modern sector. The speed at which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. The profits made in firms are reinvested and growth means increase in outputs as well as increased job creation for rural labour.
The movement of labour from traditional sector to modern sector is assumed to continue until all surplus rural labour is absorbed. Thereafter any workers being moved from agricultural sector will be done at a high cost of food production since marginal product of rural labour will no longer be zero. (Todaro and Smith, 2009:117).
2.7.1 Criticisms of Lewis’s theory of development
The model implicitly assumes that the rate of labour transfer and employment creation in the modern sector is proportional to the rate of modern sector capital accumulation (Todaro and Smith, 2009:117).
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The model went on to postulate that, the faster the rate of capital accumulation, the higher the growth rate of the modern sector and the faster the rate of new job creation. The authors’ further note that empirical reality does not support this arguing that the profits made in a capitalist are not usually reinvested in the same activity. In the same vein, the model failed to take into consideration the capital flight complications and the replacement of labour with capital intensive equipment (technology).
The models assumed that surplus labour exist in rural areas while there is full unemployment in the urban areas. Most labour literature argues that there is more idle labour these days in urban areas than the rural areas (Todaro and Smith, 2009:136). While Lewis model assumed high presence of surplus labour in rural areas, the South African economy demonstrates the opposite.
The Lewis model failed to take into consideration the impact of union on wages, a proposition that would have changed wages in the both sectors affecting the real wages and upsetting the easy movement of labour. Absorption of surplus labor could have ended prematurely because competitors would raise wage rates and lower the share of profit (Boyd, 2007:18). During the years of labour bans in South Africa, the model could hold water but the unionized South African economy would nullify the labour movement aspect of the model.
The Lewis model underestimated the full impact on the poor economy of a rapidly growing population, i.e. its effects on agriculture surplus, the capitalist profit share, wage rates and overall employment opportunities. Similarly, Lewis assumed that the rate of growth in manufacturing would be identical to that in agriculture, but if industrial development involves more intensive use of capital than labor, then the flow of labor from agriculture to industry will simply create more unemployment. (Wagner, Endres and Eichner, 2011:114).
The transfer of unskilled workers from agriculture to industry is regarded as almost smooth and costless, but this does not occur in practice because industry requires different types of labor. The problem can be solved by investment in education and skill formation, but the process is neither smooth nor inexpensive (Ranis, 2004:18).
The model assumed rationality, perfect information and unlimited capital formation in industry. These do not exist in practical situations and so the full extent of the model is rarely realized.
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However, the model does provide a good general theory on labour transitioning in developing economies.
2.7.2 Implications for Economic development
The implications include: Distribution and Consumption are Important in Development
While some critics argued that Lewis model was not interested in the distribution or consumption but rather subjugate to economic growth, reality proves them wrong (Boyd, 2007:4). “The model looks at the relationships between output, consumption, saving and government activity, but we shall be doing this from the angle of growth of output, and not from the angle of growth of consumption” (Lewis, 1954). Although not in detail, the Lewis model explained the critical role consumption played in economic growth. Capital formation and capital relevant institutions are compulsory for development to exist
Capital formation is one of the conditions of economic growth while the existence of a law of property is one of the conditions of capital formation. This proposition found favour in the work of Rostow and Harrod-Domar. A well-functioning financial system can play a pivotal role in economic development by facilitating capital formation and reducing transaction costs which, in turn, promote economic growth (Levine 1997:679, Takaendesa, 2005:31) and Odhiambo, 2002:2). Financial institutions act as intermediaries for this process and therefore the development of a sound financial system (financial deepening) will lead to economic growth. Its primary task is to move scarce funds from those who save to those who borrow for consumption and investment (Todaro and Smith, 2003). By making funds available for lending and borrowing, the financial system facilitates economic growth.
2.7.3 Application of the Lewis theory of development model in Chris Hani District context
According to Todaro (2011:117) the Lewis model makes two assumptions that there is excess labour in rural areas and that there is an equal share of output by rural workers. What this theory holds true and in line with Rostow’s theory of development during the mass consumption stage due to lack of employment opportunities in the rural areas men especially in the Chris Hani region went seeking for job opportunities in the mining sector in the urban areas. Due to relaxed
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labour acts which favoured business as the time the urban mining areas were able to rapidly achieve economic growth due to lower wages paid to workers which was available in excess. This contributed to the structural differences in development between the rural district and industrialized areas.
The Chris Hani District Municipality (2013: 26) notes that despite the industrial development which has taken place for the past 40 years in urban areas it has not translated into economic development in the Chris Hani district as one of the labour sending areas as per the assumptions of the Lewis model. One of the shortcomings of the Lewis model is that it does not take into consideration the risk of capital flight which is when profits leak out of the developing economy into developed economies. Hogg 2016 states “capital is cowardly; it only flows where it is safe and has the potential to grow. Neither of which, right now, is on South Africa’s economic agenda”.
Another assumption of this model is that capital accumulation in the industrialized areas will contribute to self-sustaining growth which will have a trickle-down effect to rural areas which is known as the “Lewis turning point” (Todaro and Smith 2011:118). Currently whilst there is capital accumulation both by the private sector and government in the urban area, (Statistics SA 2012) report confirms a reduction in the Chris Hani population to urban areas. This is a clear indication that the capital accumulation in the urban areas has not trickle-down effect to rural areas hence the influx of rural people to urban areas in search for better opportunities
2.8 Drivers of economic development
2.8.1 Legislation
The point of departure in discussing the legislation as a key driver to economic development is the South African economic transformation and its merits where there are various policies that have been enacted over time by the South African government to provide guide economic transformation.
In South Africa the apartheid regime had been in place for 40 years with various pieces of legislation and strategies to ensure that it is well monitored with serious repercussions to those who against it. According the (DTI: 2007) the apartheid was a systematic exclusion of the black South Africans who are a majority in South Africa from full participation in the economy.
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It further states that the defining feature of apartheid was the use of race restrictions and severely controlled access to the economy by black persons. This continued until the dismantling of the apartheid in 1994 leaving deep scars and a severely under developed black majority, the following are some of the ways the vast majority was deprived of: Apartheid confined the majority of African people to homeland areas, which were not only the poorest in terms of living conditions, infrastructure and business opportunities, but also lacked a dynamic business infrastructure and environment. Racially segregated areas enforced through the Group Areas Act not only uprooted millions from their places of residence, but also led to large capital losses and virtually destroyed the fabric of black small enterprises. The drastic curtailment of property ownership rights of black persons made it impossible for them to acquire assets that could serve as collateral for loan financing; it also excluded black persons from the long-run process of capital accrual and growth. The South African democratic government in its attempt to transform the South African economy a number of policies and frameworks were put in place between 2000 and 2013 to grow the various sectors of the economy.
2.8.2 Skills development According to the DTI(2010), in its quest to support the existing industrial policies with a more focused approach on job creation identifies what is termed “job drivers” to secure strong and sustainable growth and it continues to prioritize key sectors to support employment creation as follows: Infrastructure The agricultural value chain The green economy Manufacturing sectors as included in IPAP Tourism and certain high level services Kaplan (2007:64) concurs that one of the areas that South Africa need to address is the severe shortage of skills and limited training as they simultaneously restrain productivity.
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This is inextricably linked to material poverty and deprivation, which deepens the condition of powerlessness and alienation. Our core challenge is to confront these impediments to a dignified human existence. It should be understood that the majority of South Africans have in the past been denied of any skilling or training opportunities. To address these imbalances the government has put skills development as the backbone to integrate the previously disadvantaged into the mainstream of the economy.
The implication of the above is that any investment to grow the industries in SA will potentially be wasteful expenditure and might not yield any sustained results unless the issue of skills and training is addressed. According to (Laubscher, 2012), Korea and Japan in order to achieve exceptionally high levels of industrial growth they were blessed with high levels of education that enhance the capacity of the workforce to absorb new technologies.
2.8.3 Entrepreneurship A number of scholars, policymakers and theorists have defined an entrepreneur differently but an entrepreneur is someone who exercises initiative by organizing a venture to take benefit of an opportunity and, as the decision maker decides what, how and how much of a good or service will be produced (Joseph Schumpeter 1950). In his definition he goes further to describe entrepreneurs as people who supply risk capital and due to the risk taken the entrepreneur will monitor, control the business activities. Entrepreneurship as an instrument to drive economic transformation in South Africa is at the centre of all the economic policies. This has not been achieved as the country has seen more tender based entrepreneurs than entrepreneurs as described by (Schumpeter 1950). According to (Rivett-Carnac 2008), whilst government has put in place a number of policy instruments in place to address unemployment and poverty, there is recognition that deliberate programmes need to be in place to ensure the growth of entrepreneurs in viable and productive small enterprises. This includes both the creation of new enterprises that in turn generate formal jobs, and the graduation of certain viable informal enterprises to formal businesses.
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2.8.4 Innovation and technology As early as 1776, Adam Smith recognized the hypothetical linkages between innovation and economic development. He states in An Inquiry into the Nature and Causes of the Wealth of Nations, that: “Many improvements have been made by the ingenuity of the makers of the machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade it is not to do anything, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens… and the quantity of science is considerably increased by it. ” (Smith, 1776).
The global middle class is expected to grow from 1.8 billion in 2009 to 4.9 billion by 2030. (World Bank report 2011). Much of this will occur in developing countries where 70 percent of global economic activity will emerge by 2050. However, with this growth comes increasing demand for energy, infrastructure, and consumer goods; Asia alone will require $8 trillion in infrastructure financing over the next decade to maintain current growth levels. Meanwhile, Africa is expected to hold the world’s fastest urban growth rate until 2050 but faces on-going issues related to poverty and inequality. This cannot be achieved without support from donors. They must leverage science and technology to build institutional and human capacity in developing countries and foster an enabling environment for future innovation, and ultimately economic growth.
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2.9 Manifestations of Economic Development 2.9.1 Reduction in poverty and inequality The Human Development Index (HDI) is a composite statistic used for ranking by level of "human development”. It is a comparative measure of life expectancy, literacy, education and standards of living for countries, regions, provinces, cities and even villages worldwide. In South Africa the HDI has dropped from 0.627 in 1995 to 0.556 in 2010. According to ECCSEC (2015), the HDI in the Eastern Cape has been lower than South Africa’s HDI since 1995 and has dropped from 0.582 (1995) to 0.513 (2010), exhibiting a down ward trend for the past five years. This is largely owing to the lower life expectancy resulting from the HIV/AIDS pandemic. Poverty in the Eastern Cape remains widespread and deep. Owing to South Africa’s apartheid history poverty is intergenerational and structural. Accordingly, the national government and the Eastern Cape provincial government have undertaken a series of programmes to address poverty and have successfully mainstreamed anti-poverty initiatives into the planning and implementation of government programmes. According to the Gini coefficient, inequality in South Africa worsened from 0.68 in 2007 to 0.69 in 2010 (ECSECC, 2014). In line with this, the Eastern Cape has also become more unequal with a Gini coefficient that has dropped from 0.636 in 2007 to 0.646 in 2010. 2.9.2 Transformation of institutions According to the African National Congress (ANC 2012) discussion document on economic transformation the seeds planted by the long walk to freedom can only sprout within an environment that is truly conducive to that of a united, non-racial, non-sexist, democratic and prosperous society. This is representative of a society in which all citizens will be measured by their humanity without attributing material regard to their race, gender and/or social status. The 1994 democratic breakthrough provided the ANC as a liberation movement with the opportunity to pursue economic policies, which holds inclusive growth, development and wealth distribution at its core in order to bridge the inexorable gap between the rich and the poor within our country. It has thus been identified that within this context, there exists a definite need to amplify the role of Development Finance Institutions (DFIs) and State-owned Enterprises (SOEs) as instruments for significantly advancing the levels of economic transformation within South Africa.
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2.10 Local Economic Development Governance LED governance over the years has moved on from intervention to enablement, with the later defined, as the process in which government creates a favourable environment and provides support measures to help public and private actors contribute to the best of their ability to local economic development (Burgess and Bryman 1994). He further defines LED governance as “enablement” a concept spread across three spheres, political, market and community.
2.10.1 Political Enablement Political enablement involves “transformation” in the structures and functions of national, provincial and local government, the relations between them, and their relations with the market and the community (Burgess and Bryman 1994). This transformation is achieved through political and administrative decentralisation, democratisation, and managerial and institutional reforms. (Burgess and Bryman 1994). He further postulates that political enablement involves the widespread use of NGOs and community-based organisations and entails the adoption of enabling strategies towards the market and the community in the allocation of materials and financial public goods and services. Enablement in this sense means changing roles for government and building governance capacities rather than merely shrinking the scope of the state (Hindson and Vicente, 2005). The intention is to transform the state so that it, in turn, can enable private and civil society actors to perform more effectively.
The political enablement role in LED in South Africa is seen by the formation of structures of interaction where all LED role players are involved. Amongst some of these structures formed is the LED network and national LED indaba. LED Provincial working group at provincial level and District support team at district level and LED forums at municipal level. However, political enablement does merely mean inter-governmental coordination and packaging and delivering essential infrastructure, but should mean involvement of business, community and other actors, not only as beneficiaries of public resources but also as initiators, contributors, implementers, monitors and evaluators of development in their respective areas (Hindson and Vicente, 2005).
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2.10.2 Market and Business Enablement Market and business enablement refers to the facilitation and promotion of formal and informal business sectors and entrepreneurs to provide market solutions for the production, distribution and exchange of goods and services (Burgess and Bryman 1994). Generally, the trend is to move away from direct state provision of business development services towards private provision, instead of replacing commercial markets, efforts should be made to enable the markets to work better particularly for the poor.
According to (Hindson and Vicente, 2005) it is argued that while local economic development is about decentralisation, market and business enablement may require an increased government role rather than a decreased one, considering that markets are increasingly determined by international and national forces. Most contemporary literature on LED concurred with Hindson and Vicente’s assertion that local government and other public authorities operation at local level must generally have little say on market conditions save on public goods and service provision, relegating their role mainly to a facilitating role in market development. The key role for government in market enablement is to create a supportive economic, legal and regulatory framework, identify market failures and take appropriate action where this does not entail costs that are greater than those created by the failures (Burgess et al, 1994).
2.10.3 Community Enablement (Burgess et al, 1994) defines community enablement as a strategy adopted by the national and local government to coordinate and facilitate the efforts of community and neighbour-based organisations to initiate, plan and implement their own projects according to the principles of self-determination, self-organisation and self-management. All this is done with the aim of strengthening the capacity of individuals and groups to participate in the development of their respective spaces. Community enablement works by deepening democracy, drawing local communities into decision making over the development priorities and by encouraging direct involvement in construction and maintenance of public infrastructure and service provision programmes (Hindson and Vicente, 2005).
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The community enablement aspect goes further into promotion of individuals and group small and micro, enterprise and the livelihood.
2.11 Roles of Different Spheres of Government in LED Although modern LED theory is unanimous on the role of national government, precious little is known about the various roles government should play at different spheres (provincial and local). This section will try to and look at the role of various spheres of government in driving local economic development in South Africa.
2.11.1 National Government The National government, operating through the Department of Cooperative Governance and Traditional Affairs (CoGTA) has the mandate to drive LED at National level. CoGTA is responsible for setting national policy and development of other related interventional programmes. The Department of Cooperative Governance and Traditional Affairs website state that its role, in a broad intergovernmental partnership, supported by an LED excellence network, is to play a key role in integrating state action, combining government and off-budget resources, and energising innovation and excellence in local economic development. The department established a National LED Forum, which aims to create a focal point for LED in South Africa (CoGTA 2015). The mandate of the National LED forum is to: Improving integrated economic planning in provinces Co-ordinating access to funding and finance for LED initiatives and the creation of multi- sourced funding streams; Improving the performance of local government with respect to all aspects of local economic development; Assisting local government in identifying and capitalising on local competitive advantage for territorial economic and social development; Improving sustainable access to investment finance necessary to capitalise on local competitive advantage for economic development; Ensuring the participation of previously disadvantaged communities and individuals in the realisation of the opportunities offered by local economic development. Disseminate information to provincial and local government about LED (CoGTA 2015)
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2.11.2 Provincial Government The role of provincial government is to coordinate national resources passed down from national the national department. The role of the provincial government in LED includes:
Providing principal leadership for economic policy formulation and strategy.
Supporting optimal budget planning for integrated and efficient LED investment and programming.
Monitoring expenditure patterns and analysing local development impact and advising on strategic improvements.
Facilitating sound institutional linkages to enhance the development of local economies.
Providing ongoing developmental feedback to municipalities as they grow through LED evolution process.
Optimising investment-absorptive and utilisation capacity of district and local municipality and co-lead advocacy for LED-focused investment.
Supporting resourcing of LED strategy development and implementation, including financial provisioning, training and LED capacity building for districts and local municipalities.
Monitoring LED strategies implementation against key provincial policy and programme frameworks (Provincial Growth Development Plan (PGDP).
Leading broad monitoring and evaluation within strategic monitoring and evaluation framework of provincial development programmes (CoGTA, 2015)
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2.11.2.1 LED Provincial Working Group The provincial LED working group is a provincial structure that is comprised of local economic development practitioners from government and parastatals operating at the three levels; provincial, district municipality and local municipality. This structure excludes non-state entities. Its role is to:
Resolve local economic development matters arising from district municipalities and escalate matters that cannot be resolved to the national Department of Cooperative Governance and Traditional Affairs (COGTA) for attention.
Provide a platform for networking, learning and sharing of information for LED practitioners from across three levels (province, district and municipality) in the province.
Mobilise resources for capacity development of LED practitioners across the province.
2.11.3 Local Government The local government sphere is broken into two; district and local (CoGTA, 2015)
2.11.3.1 District Municipality The district municipality is expected to:
Facilitate stakeholder’s mobilisation and involvement in participatory LED strategy development and implementation processes.
Ensure formation and functionality of District Support Team (DST)
Coordinate and manage preparation, adoption and implementation of District LED strategy.
Support local municipality in development of their respective strategies.
Mobilise resources for implementation of district LED strategy and local municipality strategies.
Facilitate and support capacity building for local municipalities.
Facilitate intra- and inter-district, as well as other appropriate regional linkages beneficial to local economic development (CoGTA, 2015)
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2.11.3.2 Municipality/ Metro The local municipality or metro is expected to:
Mobilise and involve stakeholders in participatory LED strategy development and implementation processes.
Ensure formation of LED fora/-Local Action Team and functionality
Prepare, adopt and implement local municipality LED strategy/plan and ensure alignment with the district strategy/plan.
Mobilise and manage resources for effective development and implementation of LED strategy in all its facets, including monitoring and evaluation.
Periodically evaluate LED strategy (CoGTA 2015)
2.11.3.3 Local Economic Development Agencies (LEDA) Local economic development agencies have been increasing in South Africa ever since they were first introduced by Independent Development Corporation (IDC). Local economic development agencies have brought new energy, impetus, and expertise to development programmes (Thina Sinako, 2007). While some local economic development agencies have not delivered much, an overwhelming majority, manned by experienced development staff, have opened new networks to local economic development, investment and business (Thina Sinako, 2007).
LEDAs have the potential advantage of concentrating skills and enabling large initiatives to be undertaken (Hindson and Vicente, 2005). The more effective agencies have been able to accelerate the transformation process; by identifying underused assets with development potential, brokering opportunities, leveraging in substantial funds often from new, previously untapped sources while the fewer struggling ones are facing resource constraints – particularly in terms of operational and running cost – and are heavily dependent upon donor funding (Hindson and Vicente, 2005).
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The roles of local development agency are to:
Create economic development within a designated area.
Leverage existing assets to attract investment.
Identify and develop projects with great multiplier effects for the economic development area.
Source funding for the implementation of the identified projects.
Conduct a project management role for the identified project.
Offer technical expertise to the municipality LED unit.
Source funding to drive LED projects.
Assist the municipality in LED strategy development and implementation.
2.11.3.4 District Support Teams District support teams were established as a vehicle to help the state to institute the practical means for integrated public sector facilitation and support for Local economic development at regional and local level. By definition a District Support Team (DST) is a group of formally mandated individuals representing various sector department and parastatals, businesses, communities and non-governmental organisations, select number of members from respective LED forums to drive economic development endeavours at district municipality level.
Thina Sinako1, the organisation credited for the development of the term DST in South Africa defines a DST as [a] critical agency lever within the LED facilitation, support and management system. It is where a deeper skill for coordination and technical facilitation should lie, to provide technical support to prevailing Inter-Governmental Relations (IGR), strengthen the technical robustness
1 Thina Sinako was European Union funded organisation set to drive the formal establishment LED in the Eastern Cape. The organisation was commissioned in 2006.
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of regional and local LED forums and structures, as well as guidance and mentoring to development agents at the local municipality and community levels”.
The District support team focuses mainly on three broad areas, LED strategy development and implementation; Integrated LED programme and project management; LED learning and networking. The District Support Teams’ (DSTs) scope of work includes the following responsibility amongst others:
Conduct joint strategic planning and programme development as identified in the plan agreed for this effort by partner institutions, as well as warranted by other pertinent strategic concerns that arise in the course of this shared task. Prepare reports on all LED aspects of the district for submission to the Provincial Working Group. Participate in regional economic development and local-level LED forums. Supporting District and Local Municipalities with the development of their respective LED strategies and plans. Convene, periodically, DST meetings that deal with keeping track of DST Work Plan issues as well as, keeping track of programmes, projects and other activities underway. Resolve matters raised from LED Fora/ LAT (COGTA-EC, 2014)
The National Framework for Local Economic Development in South Africa states that:
[a] key difficulty is that the municipality or local development agency often lacks adequate, locally available funds to drive the LED process independently. Municipality-led local economic development can either employ funds generated locally, such as through the levying of rates and taxes, or it can be derived from higher tiers of government
Community-based LED, however, often has less secure funding sources, relying on charitable donation and public grants (where available).
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The (Eastern Cape provincial government 2012) traces the lack of enough funding for LED by municipality on the notion that “LED is an unfunded mandate and only receives minute budget that is left over from the other budget functions”.
2.12 Role of Other Actors outside Government
2.12.1 Community The participation of the community in local economic development is very important. The role of the community includes amongst others:
Organising and representing own group interests.
Actively participating in local economic development initiatives.
Initiating new projects and securing resources and partners for realization.
Building institutional capacity for effective participation.
Contributing knowledge, ideas and other resources.
Co-managing strategy development, implementation and monitoring and evaluation.
Taking up opportunities that arise in the process (CoGTA 2014).
2.12.2 Business The participation of business in local economic development is as important as other stakeholders. The roles of business includes amongst others:
Organising and representing business interests
Partnering government in building institutional capacity to drive LED.
Providing “intelligence” (appropriate strategic information) in support of LED initiatives.
Initiating new projects and securing resources and partners for realisation.
Taking up business opportunities that arise in the process (CoGTA 2014)
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2.12.3 Non-Governmental Organisation The participation of these three groups to local economic development is very important. Their roles include, amongst others:
Organising and representing own group interests
Building institutional capacity for effective participation.
Providing “intelligence” (appropriate strategic information) in support of LED initiatives.
Implementing projects with specific focus on those projects that are of strategic nature.
Initiating new projects and securing resources and partners for realization.
Contributing other relevant resources.
Providing technical support to communities in implementing local economic development projects and programmes. Co-managing strategy development, implementation and monitoring and evaluation (CoGTA 2014).
2.13 Summary of the main findings and conclusions
The reviewed National Framework on LED states that through the Municipal Systems Act of 2000, local government is instructed to boost the local economy through the provision of an enabling environment for economic development, local procurement, investment promotion, and support to small business and growth sectors. Whilst in line with legislation, local government is mandated to execute Local Economic Development, yet it is clear that there are a number challenges that need to be addressed in order for LED to thrive. One critical area is the implementation approach, which talks to the interface of the various levels of government.
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The South African Constitution provides for three spheres of government (National, Provincial and local) and goes further to explain the relationship between the three spheres as interdependent and cooperative. In terms of responsibilities, the National government is responsible for policy making and coordination, the provincial government responsible for province specific policies, provision of support to local government and coordination between national and local government.
The local sphere is responsible for implementation of policies. In the context of this paper it becomes the responsibility of local government to implement policies such that they can make a difference in the lives of local people or change local conditions. Due to lack of coherence and coordination of these spheres of government, as per the provisions of the constitution, there is no clear accountability or alignment of policy implementation procedures despite the Intergovernmental Relations Act of 2000 being put into place to assist with integration, alignment and coordination of programmes. The failure of the IGR framework has worsened the challenge as it is relies on forums between the spheres and various departments to improve coordination and alignment.
In South Africa policy coordination is challenging, both within the various government departments and between the three spheres of government, hence for fair evaluation of the industrial policies it has to be considered. In the evaluation of the South African industrial policies it is evident that the success of the industrial policy depends on it being supported by other economic policies, such as the monetary policy or fiscal policy. It can be further stated that literacy, numeracy, skills, and research capabilities are necessary for industrial upgrading, as it is emphasised by the current South African industrial policy framework. An effective coordination between the industrial policy, on one hand, and education, training, science, and labour policies, on the other hand, is important for the success of the industrial policies.
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It can also be concluded that whilst all policies like the IMPF, AsgiSA, NGP and IPAP acknowledge that there is a shortage of requisite skills in South Africa to support industrial growth what has been lacking is the coordination with the government departments, the institutions of higher learning to ensure that their focus is on the skills required by the country to grow.
It can be argued that this is a matter of the various arguments that are raised for and against industrial policies that as indicated tend to rely on styled facts that unfortunately do not reflect cause and effect or the absence thereof. Based on the above arguments, it can be deduced that South Africa needs to carry out an in-depth scientific exercise to determine extensively the skills available in the country versus skills required by the industry such that these inform the various department programmes of action. This is in spite of policy statement that prioritizes labour- absorbing economic growth. Based on the above it can be concluded that in many respects the appropriate level of government support for industry may not be at the centre, but in the region in which the enterprise is located, though all the industrial policies are not specific in terms of the role of local government. The White Paper on local government provides that the role of local government is to create an environment conducive for business development and therefore an extensive research or focused study to look into the conditions and skills/expertise at local government level in terms of supporting business development for economic growth specifically industrial growth must be undertaken.
Government legislation, like the IMPF and the IPAP intend to increase the supplier base to ensure that there is a focused approach to support “real producer services” and its capabilities at a local level. It can therefore be concluded that there is a need to clarify the various roles and appropriate responsibilities of the spheres of government as well as to strengthen the capabilities of each sphere according its responsibilities. Whilst the IPAP5 has five key focus areas, one of them being regional economic development and industrial integration, which is arguably the biggest stimulus to long-term growth in South Africa, it remains questionable whether this can be achieved if the role of local government is not clearly defined and well supported.
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The above argument happens against the backdrop of a number of senior politicians who continuously reflect that the implementation capacity of local government requires a special focus through a coordinated action across all spheres of government. It is noted that most of the South African legislation identifies a list of various diverse sectors that, due to lack of a strategic thrust, leaves one to wonder if success can be achieved without a focused approach on specific sectors.
It is also further concluded that whilst transformation argues that the strategic collaboration between government and business is largely absent; this is noted as business is consulted through NEDLAC as well as the normal draft policy comment sessions, with no other role to play moving forward. South Africa, moving forward, must determine whether industrial growth should be championed by the private sector and supported by government or the other way round. It is also argued that government must determine whether it has the necessary capacities to drive industrial growth or that a more prominent role should be accorded to the business sector. Another critical finding is that government, during policy making, identifies constraints and opportunities facing a specific sector. Policies are designed to address these from the outside; instead of establishing institutional mechanisms for business to play a leading role in identifying constraints and opportunities within their business sectors as well areas of support. This approach would ensure that business identifies the sectors that hold the most promise at the least effort. Whilst many theorists are against industrial policies arguing that some Asian countries achieved industrial growth without these policies to guide the process, it can be argued that the success of any industrial policy may be attributed to its objectives and how well it is implemented. The researcher further advances that IPAP does not reflect a clear priority for promoting small or big business as the agent for industrialisation as these require different approaches. In India, the approaches that has been implemented and is very successful, is where they identified all the sectors for manufacturing and supply by small business and systems both financial and non-financial, were established to support the sector.
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Probably, the focus of the industrial policy should be narrowed down to what is manageable i.e. focus on fewer sectors that form a coherent whole.
In conclusion, the industrial policy framework in South Africa places a great emphasis on the role of Small, Medium and Micro Enterprises (SMMEs) in order to meet its objectives, such as employment creation, empowerment of disadvantaged groups and increasing productivity at the expense of big/large businesses. Large firms instead in SA are subjected to punitive measures through the competition policy due to the high industrial concentration in the country. Many authors raise a set of concerns in this regard as government has put in place a series of legislation to deal with transformation of business, but lack proper implementation and monitoring to achieve the desired outcome. In this case it remains questionable whether the tougher competition measures are effective in solving the central problem relating to large firms in the South African context which is lack of dynamism and their reluctance to invest in South Africa. It is key objective of the SA government, through its industrial policies, to grow the economy 5 million jobs by 2020. Most of the projected new jobs will come from the private sector, and if this target is to be achieved the private sector must be included as a strategic partner with clear roles and responsibilities in the implementation process.
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CHAPTER 3 RESEARCH METHODOLOGY
3.1 Introduction The Chris Hani District, which formed part of the then-Transkei Homeland, became part of the Eastern Cape Province in the new democratic South Africa, including the Ciskei Homeland. The legacy of the Apartheid regime for the Eastern Cape was severe from Apartheid policies, economic failure and corruption meant very little economic and infrastructural development took place in the Homelands (Chris Hani District Municipality 2013:14). This resulted in spatial inequalities in the Eastern Cape, such as urban industrial areas versus marginal rural areas and the well-developed commercial farming sector contrasted with struggling subsistence farming. These led to the prevailing state of affairs in the Chris Hani District where, 21 years after democracy, the region still battles with unemployment, inequality and poverty.
The Chris Hani District Municipality through its Council has approved a number of economic policies and strategies will little or no impact in other areas. Whilst these are in place, the Lukhanji Municipality situated in Queenstown which used to be the industrial area with factories and the entire requisite infrastructure, has been abandoned by investors leaving behind dilapidated buildings and unemployment.
This chapter seeks to explore the methodology that will be used to investigate the promotion of LED in the Chris Hani District. The nature of the research, methodology to be utilised and the justification of the approach are explained in this chapter.
3.2 Nature of research
A lot of research has been conducted to test whether local economic development (LED) leads to economic development, employment creation and poverty reduction (with its mixed results), but very little effort has been invested to promote LED.
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Therefore, in trying to address the under-development challenges as previously outlined, CHDM seeks to identify various economic development instruments that are integrated and inclusive of the eight (8) Local Municipalities (LMs), i.e. Inxuba Yethemba, Tsolwana, Inkwanca, Emalahleni, Sakhisizwe, Engcobo, Intsika Yethu and Lukhanji LM. However, LED is a complex phenomenon; so the research makes use of qualitative research methods.
The main advantage of qualitative research is the depth that can be reached, not only by answering descriptive research questions (i.e. what, when, which, where), but also analytical questions (i.e. how and why) (Corona 2012:123, Bogopane, 2012, Ramafamba and Mears, 2012). Qualitative methods are able to identify factors, such as social norm sand socio-economic status (Creswell 1998:12). They are best suited for studying attitudes and behaviour within their natural setting, as opposed to the somewhat artificial setting of experiments and surveys (Babbie and Mouton 2002:271).
3.3 Methodology
In this study, the researcher made use of secondary data sources. Secondary sources do not require the researcher to gather original data instead the researcher uses data that already exists (Collis & Hussey 2003:160). Secondary data can be sourced from publications, textbooks in libraries, newspapers and from the internet (Collis et al 2003:161).
Some advantages of using secondary data are; first, obtaining secondary data is inexpensive and less time consuming, and secondly, the data may be more accurate than that which is obtained from primary data (Saunders, Lewis & Thornhill 2007: 258). The disadvantages are that obtaining the data may be difficult, and that some of the data that was collected might not be able to answer the research question because the data was collected for different purposes (Saunders et al 2007: 260).
The information that was accessed by the researcher includes; demographics of the Chris Hani District and the types of activities that they perform to sustain their standards of living. Due to the rural nature of the district, this was an attempt by the researcher to understand the rural communities and their choices.
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All information gathered from the various sources, including the integrated development plan of the district, and research done by higher institutions of learning was used. Over the past 20 years a series of data has been collected by various institutions of higher learning, government, donor institutions and private institutions in South Africa, in the various Provinces, including the Chris Hani District, for various purposes, including development.
Case studies help in understanding the way in which certain communities and groups respond to poverty and LED issues (Hart and Sitas 2004:37). This methodology is consistent with the fact that rural statistics do not reflect human experiences (Zafar 2005:2). The Chris Hani District, even pre 1994, was regarded as the food basket of South Africa, as the Transkei government developed the two biggest irrigation schemes in the Eastern Cape, namely Qamata and Ncora (CHDM:2014). This therefore indicates that there is sufficient data available, especially from the farmers associations nationally and locally, that represent the broader farming community in the area as well as business organisations, which will assist to determine, from their perspective what commodities would be best suited for the respective LMs. The secondary data will be used to identify whether the competitive advantage of the district is agriculture as well as agricultural commodities that are most viable for the different LMs. The extensive research should, in the final analysis, provide information on which agricultural produce can be clustered in which areas and where the produce will be best suited in terms of: It’s ability to be cultivated and the geographical spread to other potential areas that could feed the cluster; It’s current availability; accessibility to the proposed hub; and It’s ability to uplift the current socio-economic status of the proposed area.
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3.4 Rationale The major agricultural produce currently being farmed in the district includes the following: maize, sugar beet, sorghum, potatoes, lucerne, cabbage, wheat, beans, ostrich, chickens, pigs, goats, sheep and beef cattle. The assumption is that not all available agricultural produce in the district would be processed in the hub and that special focus should be placed on selected crops and livestock. This is in line with the focused approach to feedstock production that should be pursued in order to create the economies of scale required to make agro-processing in the district feasible and to reduce the present cost of transport to high-volume markets that is currently rendering local production uncompetitive. Clustering is encouraged in the Chris Hani District (CHDM 2012-2017) and has been adopted in the attempt to build a regionally competitive position for the selected products and their value chains, by relentlessly clustering resources, competencies and technology in order to achieve the strategic intent. The cluster approach to develop focused and strategically located value chains provides the momentum needed to begin the rebuilding and rejuvenating of small towns within the eight LMs. Livestock farming, field crops, horticulture, pastures and game farming are all currently undertaken in the CHDM and in all the local municipalities. Due to the lack of quality control and the unorganised nature of small and subsistence farming activities in the district, agriculture and agro-processing will remain uncompetitive until substantial economies of scale and consistent quality can be achieved. While this study does not discourage the efforts that should be put into all the different agricultural produce in the district, the intent would be to encourage a focused approach when planning for the processing facilities in the proposed CHDM Hub. The main purpose of the feedstock selection process is to identify the primary agricultural produce (crops and livestock) that can potentially serve as feedstock to agro-processing facilities within the proposed CHDM Hub. The intention would be to increase the scale of production and the quality of the selected feed stocks in the primary production areas through the formation of economic clusters in order to create economies of scale and the necessary focused areas for training that would make agro-processing in the district feasible.
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The following criteria are crucial for clusters to be successful:
- Relative proximity: production areas must be geographically located close enough to participate effectively in a cluster, and collaborate in cluster initiatives;
- Critical mass: there must be sufficient enterprises / sufficient capacity for clustering to provide significant benefits; and
- Position/role in the value chain: enterprises/sectors should be appropriately positioned in the value chain to allow the cluster process to unlock new opportunities.
3.5 Conclusion This chapter managed to clearly explain the research methodology that was used to provide rounded answers to the research objectives. In so doing, the chapter also illustrated the framework that was to ensure that a structured approach to research methodology was ensured. The rationale behind the choice of methods used was also outlined and, where possible, supported with relevant literature. This chapter is a precursor to the overview of the LED practice and key socio-economic indicators presented in chapter 4.
…………………………………………………………………………………………………………………
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CHAPTER 4
PROMOTION OF LOCAL ECONOMIC DEVELOPMENT IN THE CHRIS HANI REGION
4.1 Introduction
Chris Hani District Municipality (CHDM) is located in the Eastern Cape Province as shown in Figure 4.1 below. Queenstown is the administrative centre as well as the main economic hub in the district municipality. Slightly less than 70% of the population lives in the rural areas of the district and an estimated 30.96% live in the urban areas (SALEDN, 2013). The local economy is driven by the community services sector, trade and retail services, and agriculture. The district is relatively close in proximity to the harbours of East London and Port Elizabeth, situated in Buffalo City and Nelson Mandela Bay Metropolitan areas, respectively. The district is also linked to the country’s primary economic hub, Gauteng, by means of the N6 and N10 national highways. Such close proximity to these main highways provides investment opportunities in the transport sector.
A different challenge confronts the Eastern Cape – an over-reliance of the provincial economy on the motor manufacturing industry and small manufacturing sector. The province has the smallest primary sector in the country (both absolute and as a percentage of provincial gross domestic product [GDP]), a relatively small agricultural sector, and the largest tertiary services sector of all the provinces. Despite its infrastructure backlogs, the province has smaller utilities and construction sectors than the country as a whole (as a percentage of GDP) (ECSECC, 2015). The contribution of government services to the provincial economy is significantly higher than the national average.
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Figure 4.1: map of the Eastern Cape and its regions
Source: (Google maps 2016)
The ECESSEC annual report 2015 also indicates that the structural differences between the Eastern Cape economy and national economy are the virtual absence of a strong mining sector and the presence of a significantly larger tertiary sector. According to the Chris Hani District Municipality (CHDM, 2016), this district developed various strategies and policies that seek to promote local economic development. This is done in alignment with the national and provincial policies. In order to obtain a clearer understanding of the impact of these policies in the study area, the researcher provided an analysis of the economic information and data.
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The researcher will also review the various strategies and policies in place that seek to promote local economic development to help understand the link between the two. This chapter will also provide a thorough analysis of the legislation that guides local economic development, nationally, provincially and locally.
This chapter will discuss and analyse the data which will assist to categorically state whether or not policy makers could benefit in pursuing other development instruments in the Chris Hani District in order to bolster local economic development.
4.2 Local Economic Development in South Africa
The White Paper on Local Government (1998) introduces the concept of “developmental local government” which is defined as: “Local government committed to working with citizens and groups within the community to find sustainable ways to meet their social, economic and material needs, and improve the quality of their lives.” However the same document makes it clear that, “Local Government is not directly responsible for creating jobs. Rather, it is responsible for taking active steps to ensure that the overall economic and social conditions of the locality are conducive to the creation of employment opportunities”. The White paper continues to say
“Local Government is not directly responsible for creating jobs. Rather, it is responsible for taking active steps to ensure that the overall economic and social conditions of the locality are conducive to the creation of employment opportunities”.
While the (Constitution, 1996) places a great responsibility on municipalities to facilitate LED, the schedule in the Constitution that lists the functions of municipalities does not include LED. This has contributed to an interpretation that sees LED as an un-funded mandate for municipalities. Rather, there is a clear implication given the contrast of the constitution and its schedule that municipalities have a key role in creating an environment conducive for investment through provision of infrastructure and quality services, rather than by developing programmes and attempting to create jobs directly. It is these various mandates that, instead of providing solutions on LED have created confusion. Instead of these legislative mandates providing clarity on the various spheres of government on LED and its funding, they have left it for further deliberation and clarity, according to the National Framework on LED in South Africa (National LED framework 2006 – 2011:9).
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4.3. Local Economic Development – a global comparison
According to the LED Framework, in 2006 South Africa was on the brink of raising economic growth to unprecedented levels. With all the macro-economic fundamentals in place the country aimed to reach a consistent annual economic growth rate of at least 6% per year by 2010. The limitations of the country were acknowledged and primarily it was indicated that the population existing in a marginalized second economy could retard this long-set goal. It was therefore necessary for accelerated and shared growth to address unemployment and poverty, which are fundamental challenges to many local economies and hence South Africa’s future.
South Africa has risen one place in global competitiveness rankings, with its business efficiency seeing a major improvement, according to the Institute for Management Development (IMD: 2016) World Competitiveness Yearbook. In the 2016 report, South Africa's global competitiveness ranking rose from 53rd place out of 62 in 2015 to 52nd in 2016. The improvement is despite continued drought and a depressed global economy. This report gives an indication of South Africa as a global player and a comparison of the countries that participate in global economics.
Countries are analysed according to data grouped into four categories:
government efficiency, business efficiency, economic performance, and Infrastructure.
According to the global competitive report, India compared to South Africa rose from 44th position to 41st meaning that India is more competitive. In order to provide a more realistic picture South Africa can be compared with Bangladesh and India, as their economies are more similar.
Whilst the three countries are similar in terms of large populations and are all putting measures in place to address unemployment, poverty and inequality due to their varied political environments, the results are not similar.
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According to the Institute for management Development (2016), the gini coefficient for the three countries in 2010 was India 3.15, South Africa 63.35 and Bangladesh at 32.3, meaning that whilst the South African population is far less at 54.8 million than the 1,316 billion for India and 161million for Bangladesh; the inequality gap in South Africa is much greater than the other 2 countries. The IMD report in 2011 indicated that the unemployment figures for the three countries stood at South Africa 25.1%, India at 3.6% and Bangladesh at 4.3%. This is fundamental information that indicates that the respective strategies applied by the South African government are still not able to reduce the unemployment figures, even though the country’s population is much less that the other two countries. The socio economic status quo of Chris Hani District Municipality is presented is presented against the background of a macro economic outlook for South Africa and the Eastern Cape as a whole.
4.4 Chris Hani District demographic information
The vast majority of the rural areas of the Chris Hani District are as described by (Todaro and Smith 2011:4) “imagine a rural area in the eastern part of Africa, where many rural clusters of many tiny huts dot a dry and barren land. Each cluster contains a group of extended families, all participating in and sharing the work. There is little money income because most food, clothing, shelter, and worldly goods are made and consumed by the people themselves – theirs is a subsistence economy”
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Figure 4.2: map of the Chris Hani District and its local municipalities
Source: (EC Municipalities - Google 2016)
4.4.1 Population levels
Rapid population growth began in Europe and now is seen in the developed countries. (Todaro and Smith 2011:63). This trend has shifted in the past decades such that most population growth has been centered in the developing countries compared to the developed countries with near zero population growth levels. Despite the higher population growth rates developing countries must also contend with greater dependency burdens.
Chris Hani District Municipality had an estimated total of 804 600 people living within the boundaries of the municipality. (CHDM, 2016:17). As per the table below the Chris Hani District population is decreasing at an average of 0.08% per annum since 2002.
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TABLE 4.1 TOTAL POPULATION-CHRIS HANI, EASTERN CAPE AND NATIONAL TOTAL, 2002-2012 [NUMBERS & PERCENTAGE]
Chris Hani Eastern Cape National Total Chris Hani as Chris Hani as % of province % of national 2002 811,355 6,488,918 46,010,360 12.5% 1.8% 2003 806,340 6,487,798 46,556,367 12.4% 1.7% 2004 801,923 6,486,837 47,071,080 12.4% 1.7% 2005 798,256 6,487,856 47,606,384 12.3% 1.7% 2006 795,654 6,492,350 48,177,404 12.3% 1.7% 2007 794,994 6,500,641 48,764,219 12.2% 1.6% 2008 796,209 6,517,241 49,411,215 12.2% 1.6% 2009 798,089 6,539,796 50,028,134 12.2% 1.6% 2010 800,477 6,573,111 50,761,147 12.2% 1.6% 2011 802,441 6,608,741 51,513,755 12.1% 1.6% 2012 804,573 6,645,998 52,248,192 12.1% 1.5%
Average Annual growth 2002-2012 -0.08% 0.24% 1.28% Source: IHS Global Insight Regional eXplorer version 700
More than 93% of the population belongs to the African population group. In 2012 there were approximately 214 200 households Chris Hani District Municipality, with an average household size of 3.7 people. The total population density for 2011 was 22 people per km² which implies the amount of services required per area.
The diagram below (figure 4.3) represents the population structure of the Chris Hani District from 2012 against 2016 (CHDM, 2016:20). In 2012, the female population for the 20 to 34 years age group amounts to 10.2% of the total female population while the male population group for the same age amounts to 10.7% of the total male population. In 2016 the male working age population at 11.0% still exceeds that of the female population working age population at 9.9%. This implies that the district must focus creating jobs for the youth through labour intensive projects to.
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Figure 4.3 Chris Hani District Population Structure: 2012 vs 2017
Population structure Chris Hani, 2012 vs. 2017 Male Female 75+ 2012 70-74 65-69 2017 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 05-09 00-04
60 000 40 000 20 000 0 20 000 40 000 60 000
Source: IHS Global Insight Regional eXplorer version 700
4.4.2 Education Levels
According to the (Chris Hani District,2016:70), the total number of individuals with an education level of less than a matric certificate - including those without schooling - was approximately 430 000 in 2012 as presented in figure 4.4 below. Human capital (health, education and skills) is vital to economic growth and human development. The well performing developing countries are much closer to the developed world in health and education standards than they are to the lowest income countries (Todaro and Smith 2011:61).
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Figure 4.4: Highest level of education in Chris Hani District, 2002-2012
Highest level of education: age 15+ Chris Hani, 2002-2012 100% Matric & Postgrad degree 90% Matric & Bachelors degree 80% Matric & certificate 70% / diploma Matric only 60%
Certificate / 50% diploma without matric Grade 10-11 40%
30% Grade 7-9
20% Grade 3-6
10% Grade 0-2
0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: IHS Global Insight Regional eXplorer version 700 The total number of individuals having obtained a matric certificate without any other education was 68 950 as per table 4.2 below. In 2012, there were 167 400 people in Chris Hani District Municipality who were considered to be functionally illiterate. Expressed as a literacy rate of all people aged 20 and up, this amounts to 63.2% - up by 14.3 percentage points from 48.9% in 2002. Chris Hani District Municipality’s literacy rate is still lower than that of the Eastern Cape Province and South Africa as whole. (CHDM, 2016:72). The high illiteracy rate has a direct impact on the lack of skills and livelihood development and requires partnerships with Institutions of Higher learning.
According to the Global Monitoring report (2006:6), literacy is a right and has distinct benefits, whether acquired through schooling or through participation in adult literacy programmes. Adult programmes have some benefits, namely, human capital such as improving self-esteem and empowerment, political awareness and community action.
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TABLE 4.2 HIGHEST LEVEL OF EDUCATION: AGE 15+ - CHRIS HANI, EASTERN CAPE AND NATIONAL TOTAL, 2012 [NUMBERS]
Chris Hani Eastern Cape National Total Chris Hani as Chris Hani as % of province % of national No schooling 67,227 437,695 2,621,077 15.4% 2.6% Grade 0-2 16,909 107,464 599,961 15.7% 2.8% Grade 3-6 80,487 544,950 3,216,343 14.8% 2.5% Grade 7-9 148,825 1,173,214 8,082,816 12.7% 1.8% Grade 10-11 111,813 1,043,859 9,105,784 10.7% 1.2% Certificate / 4,393 36,160 333,274 12.1% 1.3% diploma without matric Matric only 68,956 819,275 9,175,011 8.4% 0.8% Matric & 30,728 252,909 2,359,720 12.1% 1.3% certificate / diploma Matric & 7,342 79,692 883,822 9.2% 0.8% Bachelors degree Matric & 1,970 25,707 374,910 7.7% 0.5% Postgrad degree Source: IHS Global Insight Regional eXplorer version 700
4.4.3 Poverty levels
The most important social indicator is the extent of extreme poverty amongst a community’s people (Todaro and Smith 2011:30). According to (Mohr 2002:25), a decline in the numbers of people living in extreme poverty is most certainly an indication that the community is developing. In 2012, there were an estimated 365 400 people (or 45.4% of the total population Chris Hani District Municipality) living in poverty as per (table 4.3 below). This number decreased by with 22.1 percentage points since 2002 (CHDM, 2016:67).
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TABLE 4.3 ERCENTAGE OF PEOPLE LIVING IN POVERTY BY POPULATION GROUP - CHRIS HANI, 2002- 2012 [PERCENTAGE]
African White Coloured Asian Total 2002 69.8% 3.5% 48.5% 16.4% 67.5% 2003 67.2% 3.2% 46.7% 17.9% 65.0% 2004 66.0% 2.8% 48.6% 18.9% 63.9% 2005 62.9% 1.8% 47.8% 18.6% 61.0% 2006 60.4% 1.7% 47.1% 19.2% 58.6% 2007 59.3% 1.5% 45.5% 19.8% 57.5% 2008 60.3% 1.6% 46.0% 20.5% 58.5% 2009 57.1% 1.6% 41.2% 16.7% 55.3% 2010 53.1% 1.5% 37.3% 11.3% 51.3% 2011 49.8% 1.4% 35.1% 12.5% 48.2% 2012 47.0% 1.2% 32.5% 12.8% 45.4% Source: IHS Global Insight Regional eXplorer version 700
Figure 4.5: CHDM percentage people living in poverty, 2012
Percentage of people living in poverty Local Municipalities of Chris Hani, 2012 70%
60%
50%
40%
30%
20%
10%
0% Inxuba Tsolwana Inkwanca Lukanji Intsika Emalahleni Engcobo Sakhisizwe Yethemba Yethu
2012
Source: IHS Global Insight Regional eXplorer version 700
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According to (CHDM, 2016:56) and as per the diagram above (figure 4.5) in all of the local municipalities, almost half of its population lives in poverty. The local municipality with the highest number of people living in poverty is the Inkwanca Local Municipality 57.6%, while the more urban local municipalities tend to have a lower rate of people living in poverty. This indicates that a focused approach to achieve better results in Inkwanca Municipality must be explored. In the short term poverty alleviation programmes must be implemented including ensuring that all the necessary documents are provided e.g. birth certificates and identity documents for easy access of social grants. 4.4.4 Inequality Gap
According to Todaro and Smith (2011:28), Brazil has two faces of development where the world competitive industries coexist with stagnant protected sectors. In Brazil modern agriculture coexists with low-productivity agricultural practices. Despite the above scenario, Brazil has experienced a spurt of growth that might herald lasting transformation. The inequality that has been one of the highest in the world is starting to fall and is now being seen as the “the country of the future”. This statement is made because of the transformation in economic growth and social progress.
In 2012 the Chris Hani District Municipality had a Gini coefficient of 0.57. Based on table 4.6 below between 2002 and 2012, income inequality decreased which means that an improvement is seen in the income distribution (CHDM, 2016:65). According Mohr (2002:29), this indicator measures the inequality gap within a community.
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Figure 4.6: Chris Hani District municipalities gini coefficient, 2012
Gini coefficient Local Municipalities of Chris Hani, 2012 0,66
0,64
0,62
0,60
0,58
0,56
0,54
0,52
0,50
0,48 Inxuba Tsolwana Inkwanca Lukanji Intsika Emalahleni Engcobo Sakhisizwe Yethemba Yethu
2012
Source: IHS Global Insight Regional eXplorer version 700
Comparing the Local Municipalities Gini coefficient between the 8 municipalities based on figure 4.6 above, it is clear that the inequality in the distribution of income varies across the different local municipalities. The Inkwanca Local Municipality had the highest Gini coefficient with 0.63. (CHDM, 2016). The local municipality with the lowest Gini coefficient is the Intsika Yethu Local Municipality with 0.53. It must be noted that the Intsika Yethu local municipality has the highest population in the district yet their gini coeffficient is the lowest at 0.53. This implies that they have effective local economic development and poverty alleviation programmes.
4.4.5 Employment rate
It is estimated that just over 83 400 people were employed by formal and informal sectors in the district municipality (CHDM 2016:55). According figure 4.7 below the unemployment rate was high at 34.5% in 2012 or 46 400 people. The total of economically active population was just over 134 600 people.
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Figure: 4.7 Unemployed & Unemployment rate Chris Hani, 2002-2012
52 000 39%
38% 50 000 37%
48 000 36%
35% 46 000 34% 44 000 33%
42 000 32%
31% 40 000 30%
38 000 29% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of unemployed people Unemployment rate
Source: IHS Global Insight Regional eXplorer version 700
Figure: 4.8 Formal and informal employment by sector 40 000 Chris Hani, 2012
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
Formal employment Informal employment
Source: IHS Global Insight Regional eXplorer version 700
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In 2012, the region had a total Gross Domestic product (GDP) of R13.9 billion which is a contribution of 5.9% to the total GDP of the Eastern Cape Province and 0.4% to the GDP of South Africa as a whole. In 2012, the community services sector contributed 53% towards Chris Hani District Municipality’s GVA (an indicator of business activity), with the trade and finance sectors trailing at 18% and 11% respectively. The largest sector in terms of jobs is the community service sector which includes all levels of government. (CHDM, 2016:56).
4.4.6 Human Development Index (HDI)
The Human Development Index (HDI) is defined as a composite relative index used to compare human development across population groups or regions. (Todaro and Smith: 2011). HDI reminds us that development broad human development and not just higher income. This is based on the fact that HDI measures not only the disparities in income but other social indicators like health and education.
HDI is the combination of three basic dimensions of human development: A long and healthy life, knowledge and a decent standard of living. A long and healthy life is typically measured using life expectancy at birth. Knowledge is normally based on adult literacy and / or the combination of enrolment in primary, secondary and tertiary schools. In order to gauge a decent standard of living, we make use of GDP per capita. On a technical note, the HDI can have a maximum value of 1, indicating a very high level of human development, while the minimum value is 0, indicating no human development.
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FIGURE 4.9: HUMAN DEVELOPMENT INDEX (HDI) - CHRIS HANI, EASTERN CAPE AND NATIONAL TOTAL, 2002, 2007, 2012 [NUMBER]
Human Development Index (HDI) Chris Hani, Eastern Cape and National Total, 2002, 2007, 0,8 2012
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0 Chris Hani Eastern Cape National Total
2002 2007 2012
Source: IHS Global Insight Regional eXplorer version 700
In 2012 Chris Hani District Municipality had an HDI of 0.585 compared to the 0.63 of Eastern Cape and 0.679 of National Total as a whole. In 2012, the HDI in South Africa was higher than that of Chris Hani District Municipality with an index value of 0.679; this means that the human development in Chris Hani District Municipality is worse relative to the South Africa. This means that the human development in South Africa is better relative to Chris Hani District Municipality.
4.5 Basic infrastructure in the Chris Hani District Municipality
In South Africa the apartheid regime had been in place for 40 years with various pieces of legislation and strategies to ensure that it is well monitored with serious repercussions to those who against it. According the (DTI, 2007) the apartheid was a systematic exclusion of the black South Africans who are a majority in South Africa from full participation in the economy. It further states that the defining feature of apartheid was the use of race restrictions and severely controlled access to the economy by black persons.
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This continued until the dismantling of the apartheid in 1994 leaving deep scars and a severely under developed black majority, the following are some of the ways the vast majority was deprived of:
Apartheid confined the majority of African people to homeland areas, which were not only the poorest in terms of living conditions, infrastructure and business opportunities, but also lacked a dynamic business infrastructure and environment. Racially segregated areas enforced through the Group Areas Act not only uprooted millions from their places of residence, but also led to large capital losses and virtually destroyed the fabric of black small enterprises. The drastic curtailment of property ownership rights of black persons made it impossible for them to acquire assets that could serve as collateral for loan financing; it also excluded black persons from the long-run process of capital accrual and growth. The above severely contributed to the inadequate and lack of basic infrastructure that is the key driver of community development. The various infrastructure requirements will be discussed in the section.
4.5.1 Access to housing
A household is defined as a group of persons who live together and provide themselves jointly with food and/or other essentials for living, or a single person who lives alone. Drawing on the household infrastructure data of a region is of essential value in economic planning and social development. Assessing household infrastructure involves the measurement of four indicators: Access to dwelling units Access to proper sanitation Access to running water Access to refuse removal Access to electricity A household is considered "serviced" if it has access to all four of these basic services. If not, the household is considered to be part of the backlog. The provision of formal housing for low and middle income residents is a core function of local municipalities.
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FIGURE 4.10: FORMAL DWELLING BACKLOG - NUMBER OF HOUSEHOLDS NOT LIVING IN A FORMAL DWELLING - CHRIS HANI DISTRICT MUNICIPALITY, 2002-2012 [NUMBER OF HOUSEHOLDS]
Formal dwelling backlog Chris Hani, 2002-2012 100 000
98 000
96 000
94 000
92 000
90 000
88 000
86 000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Formal dwelling backlog
Source: IHS Global Insight Regional eXplorer version 700
Figure 4.10 above illustrates the formal dwelling unit backlog (number of households not living in a formal dwelling) over time, it can be seen that in 2002 the number of households not living in a formal dwelling were 90 200 within Chris Hani District Municipality. From 2002 this number increased annually at 0.85% to 98 200 in 2012. (CHDM, 2016). The total number of households within Chris Hani District Municipality increased at an average annual rate of 1.22% from 2002 to 2012, which is higher than the annual increase of 2.07% in the number of households in South Africa. According to (ECSECC, 2007) the primary constraint with regards to the provision of housing in rural areas relates to the issues of land ownership and registration title. It is also noted that the current housing regulations fail to male provision for food gardens that poor households need for survival.
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4.5.2 Access to sanitation
FIGURE 4.11: SANITATION BACKLOG - CHRIS HANI DISTRICT MUNICIPALITY, 2002-2012 [NUMBER OF HOUSEHOLDS WITHOUT HYGIENIC TOILETS]
Sanitation backlog Chris Hani, 2002-2012 160 000
140 000
120 000
100 000
80 000
60 000
40 000
20 000
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: IHS Global Insight Regional eXplorer version 700
Figure 4.11 above illustrates the sanitation backlog (number of households without hygienic toilets) over time, it can be seen that in 2002 the number of Households without any hygienic toilets in Chris Hani District Municipality was 143 000, this decreased annually at -3.75% to 97 600 in 2012.
The local municipality with the highest number of flush toilets is Lukhanji Local Municipality with 32 200 or a share of 48.15% of the flush toilets within Chris Hani. The local municipality with the lowest number of flush toilets is Intsika Yethu Local Municipality with a total of 1400 or a share of 2% of the total flush toilets within Chris Hani. (CHDM, 2016)
It is evident that although there has been a significant improvement in the provision of sanitation in most municipal areas there are still huge backlogs to be addressed.
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4.5.3 ACCESS TO WATER
FIGURE 4.12: HOUSEHOLDS BY TYPE OF WATER ACCESS - CHRIS HANI, EASTERN CAPE AND NATIONAL TOTAL, 2012 [PERCENTAGE]
Households by level of access to Water Chris Hani, 2002-2012 100% No formal piped water 90%
80% Communal piped water: more than 70% 200m from dwelling (Below 60% RDP) Communal piped water: less than 50% 200m from dwelling (At RDP- 40% level) Piped water in yard
30%
20% Piped water inside dwelling 10%
0% Chris Hani Eastern Cape National Total
Source: IHS Global Insight Regional eXplorer version 700
According to (ECSECC, 2007) the local communities in the former homeland areas of Intsika Yethu, Engcobo, Sakhisizwe and Emalahleni continue to face the greatest backlogs as far as access to water is concerned. These areas are characterized by larger populations and vast scattered rural areas. Chris Hani District Municipality had a total number of 44 800 (20.90% of total households) households with piped water inside the dwelling, a total of 34 200 (15.97% of total households) households with piped water inside the yard and a total number of 67 000 (31.28% of total households) households with no formal piped water. The (Department of Water affairs, 2015) in their annual provincial report cited the cost of installing water in the rural areas as three times than in the urban areas as one of the reasons for the backlogs.
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4.5.4 Access to electricity The local municipality with the highest number of households with electricity for lighting and other purposes is Lukhanji Local Municipality with 39 400 households. The local municipality with the lowest number of households with electricity for lighting and other purposes is Inkwanca Local Municipality with a total of 4 100 or a share of 4% of the total households with electricity for lighting and other purposes within Chris Hani. (CHDM, 2016).
FIGURE 4.13: ELECTRICITY CONNECTION - CHRIS HANI DISTRICT MUNICIPALITY, 2002-2012 [NUMBER OF HOUSEHOLDS WITH NO ELECTRICAL CONNECTION]
Electricity connection Chris Hani, 2002-2012 120 000
100 000
80 000
60 000
40 000
20 000
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of households with no electrical connection
Source: IHS Global Insight Regional eXplorer version 700
Figure 4.13 above illustrates the number of households with no electrical connection over time, it can be seen that in 2002 the households without an electrical connection in Chris Hani District Municipality was 97 900, this decreased annually at -6.20% to 51 600 in 2012. According to (ECSECC, 2007) the district is hindered by a severe non-coverage of grid electricity. The report further suggests that government must consider investing in bulk supply of electricity and the construction of substations in order to deal with the backlog.
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4.5.5 Access to other public services
Table 4.4: Household access to public services
LOCAL MUNICIPALITY ACCESS TO ACCESS TO ACCESS TO ROADS ACCESS TO CLINICS PRIMARY SCHOOL IN GOOD AMBULANCE CONDITION SERVICES
% % % % Inxuba Yethemba 95.0 88.5 28.8 68.1 Tsolwana 96.1 100 14.1 57.0 Inkwanca 100 93.2 30.4 82.4 Lukhanji 88.2 94.5 46.4 80.3 Intsika Yethu 72.3 98.7 0.2 0.0 Emalahleni 44.9 98.7 9.0 0.0 Engcobo 81.6 97.7 48.5 1.3 Sakhisizwe 71.6 95.0 55.3 6.6 Source: ECSECC, 2007
According to the (National Development Agency, 2014) the lack of public services as illustrated in table 4.4 the low standard of living and poverty are manifests of lack of services. This is inextricably linked to material poverty and deprivation, which deepens the condition of powerlessness and alienation. Our core challenge is to confront these impediments to a dignified human existence.
4.6 LED promotion in the Chris Hani District
The Chris Hani District has significant agricultural potential, with good water resources and some irrigation infrastructure. An ambitious and detailed plan for agriculture-driven development has been proposed, focusing on Sakhisizwe, Engcobo and Emalahleni. This presents the province with an opportunity to develop a large agro-industrial hub and significantly re-order spatial patterns of economic activity and growth by promoting value-adding agro-processing industry, related industries and services, and develop new settlements of technical and professional employees in this region (CHDM, 2016). This development could also benefit Lukhanji (Queenstown), positioning it as a growing logistics nexus and light-manufacturing hub (CHDM District Development Agenda, 2015).
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The Chris Hani District is also establishing itself as a model district by piloting new forms of collective enterprise – mainly cooperatives to help grow poor black citizens’ participation in the economy. (Chris Hani Cooperative Development Centre plan, 2014). Cradock is also a growth node for agriculture and the emerging biofuel industry in the province, with its proximity to the port city of Nelson Mandela Metro giving it a distinct advantage.
These developments largely focus on developing the rural regions of the province. In the short term, they will take place at production sites not yet significantly altered by land-reform efforts led by government. In the long term, even greater opportunities will open up as the land-reform process unlocks more land for expanded farming, together with growing local capabilities for agricultural production and enterprise.
4.6.1 Locality Development
According to Hindson and Vicente (2005), LED concentrates on making the local space an attractive space for business to operate, grow and even locate to. Planning is the key instrument for locality development. One important role that the government can play to improve the business environment is to reform and streamline the regulatory regime for business activity in a certain area. Local government is legally compelled to promote social and economic development in its area of jurisdiction.
This development should be focused on addressing the basic service delivery needs of the community which includes provision of basic infrastructure, community services, educational needs and business support to all the areas where there is lack of these services. These basic services therefore enable local government to provide an environment conducive for local economic development.
According to the Local Government systems act of 2000 as amended (DPLG 2000) all municipalities are required to prepare and adopt through their councils a Spatial Development Plan (SDF). The purpose of the SDF is to co-ordinate development activities in the district, the District SDF should be taken as a guide to where planning and development initiatives could best be directed by public and private sector agencies seeking to invest in development initiatives in the district.
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The District SDF also identifies the areas in the district where strategic development intervention is required (areas of particular development potential and/or areas where current development activities represent a development opportunity) and areas where priority spending is required (areas of special need).
The other fundamental for the SDF is that it sets out basic guidelines for land use management systems in the Chris Hani District Municipality. It is through the SDF that the basic infrastructure requirements should be spelt out and planned for prioritisation by the District. It must be understood the local economic development does not take place in a vacuum but requires the basic infrastructure to be in place e.g. water, electricity, roads, houses and sanitation. It is this basic infrastructure coupled with community structures, non -governmental organisations and government intervention as well as other government departments like education, health and social services that are pillars to locality development (CHDM, 2016:112).
4.6.2 Livelihoods Development
According to Chambers (1992), livelihood comprises the capabilities, assets, resources and access to amenities and activities required for a means of living of a community. The lack of or inadequate development of livelihoods that manifests itself in poverty and vulnerability of a community. This concept was further developed to sustainable livelihoods as it was found to be too narrow and did not consider other aspects such as vulnerability and social exclusion. It has now been further broadened to pay more attention to various factors which constrain or enhance poor people’s ability to make a living in a sustainable manner.
According to Todaro and Smith 2006:22) it is through the process of livelihood development that a society ensures growth in wealth acquisition, mental enrichment and the betterment of the quality living conditions. The Chris Hani District has over the years implemented the BBBEE policy as part of its procurement policy to ensure a developmental approach in the access to municipal procurement for the growth of SMME’s (CHDM, 2016:121).
The establishment of the Cooperative Development Centre has assisted cooperatives in the area to establish agricultural cooperatives with training and access to market for their produce. These cooperatives that are mainly owned by women are able to look after their families whilst working locally and earn a living.
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The District has also in support of micro enterprises approved a number of policies like the SMME development policy and the Cooperative development policy that guide the support of these micro businesses financially and otherwise. Despite the challenges that are experienced in the development of livelihoods that are not unique to the district the small initiatives ensure that hunger is kept at bay.
4.6.3 Enterprise Development
Enterprise development is defined as an activity to that assists or accelerates the development, sustainability and ultimately financial independence of an enterprise development beneficiary who is the entrepreneur. These contributions contribute to the acceleration of enterprises which maybe monetary or non-monetary. Entrepreneurship as a driver of LED is at the centre of all policies in South Africa. (DTI, 2010) The developed countries relied on the creation of new enterprises has generated formal jobs and has led to the graduation of informal businesses to formal enterprises.
According to the CHDM (2016:114), more than half of the enterprises are in the trade sector, followed by community, social and personal services sector businesses. Catering and accommodation represents a third sector with a relatively high level of commercial activity in terms of district entrepreneurship. Few enterprises are involved in commercial agriculture despite the numerous agriculturally based poverty alleviation projects being supported by the ISRDP programme.
In general, the district lacks business support services as business people have to either travel to Queenstown or outside the municipal area to access business support services. Lukhanji municipality has the most developed business environment as the area is the main urban centre of the district and its primary economic node. SMMEs in the district still face a number of constraints related to the legal and regulatory environment; market access; access to finance and suitable business premises; the acquisition of skills and managerial expertise; access to appropriate resources and technology; the quality of infrastructure, especially in rural areas; bureaucratic hurdles; and in some cases, the tax regime (Annual Small Business Review, 2001).
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The South African government identified the development of cooperatives as one of its flagship programmes. (Chris Hani District Cooperative Development Centre, 2015). This was done to develop the second economy that supports the majority of the population in as far as creating jobs, increasing household income, reducing poverty, and improving the overall standard of living is concerned. It was for this reason that the District actively supported and facilitated the establishment of the Chris Hani District Cooperative Forum in November 2008 and by extension the eight local cooperative forums that exist in the district.
The District’s Growth and Development Summit (GDS) held in 2006 was a historic milestone to strengthen private-public dialogue and commitment to a shared pro-poor economic and investment growth path for the district. One of the key and relevant resolutions taken at the GDS relate to the establishment of a fully representative district-wide business forum, with various local business forums in each local municipality set up to allow dialogue between the public and private sectors that would act as a single interface to lobby advice and partner government to further common course. (CHDA, 2015).
4.6.4 Agricultural Development
Agriculture forms one of the key potential growth sectors in the CHDM. The Integrated Agricultural Strategy was developed in 2008 and due to further developments at the local space it is currently being reviewed.
The Chris Hani District agricultural strategy prioritises the following sectors for investment:
Agro – processing e.g. cheese production Livestock farming particularly Goats and Cattle High Value crop production e.g. hydroponics and bio-fuels Advantage of Irrigation schemes Livestock farming is an important source of income for both commercial and communal farming. The western part of the region is increasingly turning to game farming especially in the areas around Queenstown, Cradock, Tarkastad and Molteno. The District Municipality has engaged in partnerships with National Wool Growers Association (NWGA) to improve the quality of wool sheep, develop wool growers associations, train farmers on livestock and veld management and build appropriate infrastructure such as shearing sheds and fences.
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In the past financial year a number of Shearing sheds were built and completed at Intsika Yethu LM, Lukhanji and Engcobo municipalities.
The major challenges that face livestock production in the district are as follows (CHDM, 2014:156):
low skills level access to land poor veld and livestock management limited access to markets limited access to financial and credit access by emerging farmers due in part to insecure land tenure limited mentoring and information from Department of Agriculture Dilapidated and insufficient infrastructure such as roads, fencing, stock dams and dipping tanks.
Dryland cropping is only feasible in small parts of CHDM within the Intsika Yethu, Sakhisizwe and Engcobo municipalities. The District Municipality in collaboration with both the Department of Agriculture and Rural Development (DARD) and Emalahleni Local Municipality is involved in the Sorghum production programme in Emalahleni LM the main aim of this undertaking is to provide adequate raw material to the Mill Plant so as to maintain the project sustainability. The Department of Agriculture and Rural Development have prioritised these areas under the Massive Food Programme. The Siyazondla homestead food production programme assists with improving household food security. Under High Value Crop Production, the District supported the pilot project for Hazel Nuts production at Glenbrook irrigation, partnering with the Eastern Cape Development Corporation (ECDC) and an Italian Company. The project was initiated by Agrisudafrica and Eastern Cape Development Corporation (ECDC) as a Community Development Project with contributions by various other role players including the Department of Agriculture and Rural Development (DARD).
The project is a pilot project for the evaluation of hazelnut production viability in the area with added value in the form of a successful vegetable business and training programme.
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There is presently 8000 ha under irrigation with CHDM containing two of the largest irrigation schemes in the Eastern Cape i.e. Ncora and Qamata. A further 7600 ha could be placed under irrigation if the large Gariep Transfer Project were to be implemented. However there are vast areas of underutilised land within the existing schemes such as Shiloh where only 40% of the scheme is currently utilised. In addition to these schemes there are several large scale commercial farming enterprises.
The above information is clearly an indication that there are efforts by the district to move from subsistence farming to specialised commercial farming despite the challenges. According to Todaro and Smith (2011:438), agricultural modernisation in mixed market economies may be described in terms of the gradual but sustained transition from subsistence to diversified and specialised production.
He goes further to indicate that this transition requires much more efforts such as:
Transforming the farm structure to meet the demand for increased production Profound changes affecting the entire social, political and institutional structure of rural societies.
Therefore; the CHDM efforts must consider the above structural changes or these efforts will lag behind and might widen the gap between the wealthy and the masses of impoverished tenant farmers. CHDM and Department of Rural Development and Agrarian Reforms have prioritised irrigation schemes under their respective revitalisation and resuscitation programmes. Their collaborative efforts are focussed towards attracting investors to run the schemes under private, public partnerships.
Funding has been provided for setting up the correct institutions to run the schemes, building of lay dams, centre pivots and irrigation systems, upgrading of office facilities, seed, planting and harvesting operations as well as equipment such as tractors, ploughs and trailers. However due to the complex community structures residing within the schemes, the effort of the District and its partners has not yet resulted in independent and financially sustainable irrigation schemes although considerable progress has occurred.
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4.6.5 Skills Development
This is an approach to economic development that attempts to enhance a region’s economic stability by focusing on developing its human resources. Workforce development is a set of solutions that are interconnected to meet employment needs. This approach prepares workers with t and the required skills whilst it puts emphasis on workplace learning.
The Lewis theory of development is based on the abundance of labour in the traditional agricultural economies which could lead to further profits and capital accumulation if supplied to industries. (Todaro, 2011:15). It does not take into consideration that the industry has a different skills requirement to the traditional economy.
The transfer of unskilled workers from agriculture to industry is regarded as almost smooth and costless, but this does not occur in practice because industry requires different types of labor. The problem can be solved by investment in education and skill formation, but the process is neither smooth nor inexpensive (Ranis, 2004:18).
In South Africa the (DTI, 2010) in its industrial policy IPAP places more emphasis on skills development as one of the drivers for economic development to secure sustainable growth. The Chris Hani District also has in place a skills development plan for the community. This plan is driven through various district agencies to ensure a focused approach. The training of SMMEs and youth is done through the Chris Hani Development Agency whilst the training of cooperatives is done through the Cooperative Development Centre (CHDM, 2014:91).
According to (Chang,1994) in his evaluation of the South African industrial policies points out that the success of the industrial policy depends on it being supported by other economic policies such as the monetary policy of fiscal policy, he goes further to say “likewise, if literacy, numeracy, skills, and research capabilities are necessary for industrial upgrading, as it is emphasized by the current South African industrial policy framework, an effective coordination between industrial policy, on the other hand, and education, training, science, and labour policies, on the other hand will be important for the success of the industrial policy.”
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4.6.6 Special Economic Zones
An SEZ is defined as a geographically limited area administered by a single body offering certain incentives and benefits to businesses physically located within the zone. (DTI, 2013). Over the last decade, the number of SEZs worldwide has grown dramatically as they are increasing being used as an economic policy tool. Traditionally, SEZs can either be Free Trade Zones (FTZs), Export Processing Zones (EPZs), Industrial Development Zones (IDZs) or Sector Development Zones (SDZs). Economic benefits associated with the establishment of an SEZ include: Increase foreign and domestic private sector investment; Export growth and diversification; Development of industries; Skills upgrade and technological transfer; and Improvement of effective tax rates through enhanced tax collection within the zone. The Special Economic Zone (SEZ) Bill of 2013 is the pillar of a number of legislations that govern IDZ’s and SEZ’s in South Africa, which is now another economic development instrument in South Africa having been tried and tested in the already established IDZ’s. This primary SEZ legislation has been prepared by the DTI and is supported by all other national legislation, especially the Customs and Excise Act for all SEZs seeking customs’ incentives. The operations of SEZs are governed by the SEZ regulations, which are themselves supported by various sector strategies and guidelines, including the National Development Plan (NDP), Industrial Policy Action Plan (IPAP) and New Growth Path (NGP). The predecessor of the SEZ programme is the IDZ programme which was established by the DTI in 2000 as an incentive programme to boost industrial expansion and create jobs amongst other objectives.
It is important to note that South African SEZs are not exempted from any existing legislation and, at present, all national legislation (unless so specifically excluded) is in force within their boundaries. SEZs are geographically based industrial parks that have controlled areas (CCA’s) of SEZs. Internationally, some SEZs are governed in terms of the Kyoto Protocol, where national customs laws are not in effect. Indeed, some others suspend or limit labour rights, which is not a situation that South Africa will support.
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Due to the limited success that the IDZ programme has had over the past 10 years, in 2008 the DTI began a comprehensive review of the programme. The review has resulted in a major revision of the programme, which now becomes the SEZ programme, with changes being made to legislation, strategic intent, governance and programme financing.
According to the CHDM (2016:111), the Chris Hani District Municipality developed and adopted a District Development Agenda that focuses on the development of all its 8 local municipalities through the identification of competitive advantages of its local municipalities. This was later translated into an Agro Industrial Plan that has been used as a spring board to the proposed Special Economic Zone. As part of that process the Coega Development Corporation was commissioned to conduct a feasibility study to ensure that the future plans, productive capacity and economies of scale of each local municipality are properly captured and articulated to inform the establishment of the clusters.
The feasibility study also looks into the process of regional integration to assist with economies of scale.
The analysis of the province’s potential and opportunity must consider assets and strengths found in various sub-regions of the province in order to aid regional and local planning and development. The Provincial NDP 2030 outlines a regional development approach that has a potential to allow for targeted investment and development initiatives, while fostering connections and linkages between provinces. Regional development should also be approached from a holistic spatial perspective that brings together urban, rural and wilderness areas as it is alluded to in the CHDM SEZ feasibility study report. (ECNDP, 2014).
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4.7 Overview of the Eastern Cape economy
It is over five years since the global recession seized up, and various economists have speculated on when the “W-shaped” recovery (also referred to as “double-dip”) in the province will come to an end. According to the National Economic Indicator report 2015, in the Eastern Cape, the first post-recession dip was experienced in the first quarter of 2013 (with a negative growth of -0.5%) and the second one in the third quarter of the same year (with a negative growth of -0.8%). (ECSSEC, 2015) annual report alludes that this poor and persisting slowdown in the Eastern Cape economy was aggravated by two factors; namely, a high cost of living making the Eastern Cape headline inflation rate among the highest in country as well as a high unemployment rate in the province. In the third quarter of 2014 alone, 17 724 people were added to the list of unemployed and 18 869 people to the list of discouraged job-seekers. Consequently, the unemployment rate rose to 29.4% in third quarter of 2014 compared to 27.5% in third quarter of 2013.
Overall, the following findings are noted in the (ECSSEC, 2015) report with regard to the performance of the Eastern Cape economy:
Fragile economy with 0.4% growth in 3Q2014 Growth in the Eastern Cape remains unsustainable Low growth rate with downward overall trend and Slow recovery with a double-dip of negative growth in 1Q2013 and 3Q2013.
The South African Reserve Bank annual report (SARB, 2015) mentions a number of challenges that must be addressed by the country that are regarded as post-recession challenges, namely:
Economic uncertainty RSA domestic economic development Low economic growth High unemployment rate, Deindustrialisation and Increasing cost of living
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According to the South African Reserve Bank (SARB 2014) the rate of increase in the real gross domestic product decreased to 1.4% in the third quarter of 2014, a disappointing performance compared to that of 5.1% attained in the fourth quarter of 2013. The poor performance of the South African economy in the fourth quarter of 2014 was mainly attributed to a contraction in the primary and secondary sectors’ real outputs. The Eastern Cape economy, the seasonally adjusted real GDP at market prices for the third quarter of 2014 slowed to an annual rate of 0.4% from 0.9% achieved in the second quarter of 2014. This decline was mainly driven by poor performance in construction, mining and manufacturing activities, which reflected negative growth in the third quarter of 2014.
4.8 Agricultural analysis in the Eastern Cape
The Eastern Cape accounted for approximately 7% of the annual South African Agriculture, Forestry and Fisheries sector (AFF) GVA from 2006 to 2010. The leading provinces were KwaZulu-Natal and the Western Cape, with 29% and 23% respectively. At the district level in the EC, O.R. Tambo overtook Cacadu as the leading contributor to AFF GVA in 2008. In 2011, OR Tambo district was the biggest contributor to the Province’s primary sector (31.7%), a 0.3% increase when compared to the previous year, followed by Cacadu district (19.8%) and Amatole district (18.3%). OR Tambo district has increased its share of the primary sector output by 22.9% between 1995 and 2011, while Cacadu’s share plummeted by 15.4% during the same period owing to a focus in the automotive sector in the region. Between 1995 and 2011, CHDM’s share of the primary sector output decreased by almost 50% from 15.3% to 7.8 %.( ECSECC, 2014). The following figure 4.14 shows the proportions of EC districts’ output in the primary sector.
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Figure 4.14: Share of the EC Districts in the Primary Sector, 1996 - 2011
Source: CDC calculations based on Quantec Research data 2014
Primary sector activities are mainly the production of basic foodstuffs and the extraction of raw materials. This sector comprises activities in the agriculture, forestry and fishing industries as well as mining and quarrying industries. Table 4.5 below identifies the contribution made by each Province to the overall output of the country’s primary sector. In 2011, about 20% of the primary sectors’ output in South Africa came from the North West Province, while the EC has been the smallest contributor to the overall output since 1995. The primary sector contributed only 2.1% to the country’s total economy in 2011, a decrease of 0.2% from 2009. The AFF industry accounted for more than 93% of the total contribution to the primary sector in the Province.
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Table 4.5: Primary Sector GVA Contribution by Province, 1995-2011
Rank 1995 Rank 2005 Rank 2011
Western 8 6.3 8 6.5 7 7.0 Cape
Eastern Cape 9 1.9 9 1.5 9 2.1
Northern 7 7.0 7 7.2 8 6.9 Cape
Free State 6 9.2 6 8.1 6 7.4
Kwazulu- 5 9.9 5 9.6 4 11.2 Natal
North West 1 20.5 1 20.4 1 20.6
Gauteng 4 14.4 4 11.1 5 9.7
Mpumalanga 3 15.2 3 16.7 3 16.6
Limpopo 2 15.7 2 18.7 2 18.5
Source: CDC calculations based on Quantec Research data 2014
Another unattractive factor is the decline in employment within the AFF sector in the Province. Employment in the AFF sector in the eastern part of the EC has, as a result of the decline in AFF in general in the Province, declined from over 40% of the total employment in 2000, to only about 5% in 2011.
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Figure 4.15: EC AFF Employment numbers and percentage employment to total
Source: CDC calculations based on Quantec Research 2014
4.9 Agricultural resources analysis in the Chris Hani District
4.9.1 Climate and rainfall
The climate in CHDM varies from arid to very cold high veld and falls mainly into two climatic zones, i.e. Arid and Semi-Arid Moderate Midlands, and Arid and Semi-Arid Cold high lying land (Eastern Cape Government, 1996). The rainfall varies dramatically over the area depending mostly on altitude and distance from the coast. In the western arid areas, the average annual precipitation is between 200mm and 300mm whereas in the eastern high lying areas of Cofimvaba it is 700-800 mm. The greater part of the area is, however, arid to semi-arid and receives less than 400mm per annum. Rainfall distribution is erratic and dry spells are a frequent occurrence.
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4.9.2 Temperatures
The temperature is characterised by extremes during the summer months; the maximum temperature often exceeds 40ºC in the lower lying areas in the western (arid) section. Minimum temperatures in the winter months in the high lying areas are often well below zero and frost and snow are common occurrences throughout the area. Frost can, however, occur at any time of the year in the Molteno area. This area experiences the largest inter-diurnal variation (change from one day to the next) in temperature (Roets & Associates, 1999). The temperature in the eastern part of the CHDM is a bit more moderate, with frost occurring from mid-May to mid-September.
4.9.3 Geology and Soils
The ground conditions in CHDM consist mainly of Beaufort sediments intruded by Dolerite. These comprise shale, mudstone and sandstone. The soils in CHDM are mainly from the Beaufort and Molteno series of the Karoo sequence. As a result, the soils are poorly developed, shallow or duplex (rocky) and are mostly not suitable for crop production. In the valleys, however, deeper soils do occur (Eastern Cape Government, 1996).
As an example, in the Fish River Valley there are 15 soil forms, of which the Hutton, Clovelly and Oakleaf forms (Binomial Classification) are dominant. Soil salinity is, however, a major problem in the irrigated areas in the Cradock, Hofmeyr and Tarkastad. The soils of the more arid areas of CHDM are generally shallow and consist mainly of the Mispah, Glenrosa and Swartland forms. In the flood plains, watercourses and plains, deeper soils of the Oakleaf, Dundee and Valsrivier form are more common.
4.9.4 Water Resources
CHDM falls within four river systems:
The Great Fish River draining the central/western area southwards;
The Kei River draining the central/eastern area southwards;
The Mbashe River draining the eastern area southwards; and
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Of these, the Fish and Kei Rivers are the most significant rivers in terms of the catchment areas in CHDM. The total surface water available in the District has been estimated from the Eastern Cape Water Resources Assessment as follows:
Potential maximum yield (including dams and transfers) = 1013.5 m cum /annum Probable total consumption and losses = 775.8 m cum/annum Available surface water resource = 237.7 m cum/annum.
It is clear that, across the whole of CHDM, there is a positive surface water balance and that approximately 23,4% of the potential yield is still available for use, providing drought conditions do not exist. It is, however, worth noting that the resource is concentrated at the major dams and rivers and, as would be expected, is not readily or cheaply accessible to all potential users located at a distance from these resources (Eastern Cape Government, 1996).
4.9.5 Contextual and Legal Environment
The agro-processing industry is among the sectors identified at a national level by the IPAP, NGP and the NDP for its potential to spur growth and create jobs because of its strong backward linkages with the primary agricultural sector. Potential for agriculture is also advocated in the Provincial Growth and Development Plan (PGDP). At a district level, the CHDM Integrated Development Plan (IDP, 2012-2017) broadly defined the agricultural sector as having “potential to contribute to job creation, promotion of livelihoods’ opportunities and contributing to sustained social and economic growth and development”. The IDP also highlights the following subsectors for investment:
Agro-processing, e.g. cheese, wool production; Livestock farming, particularly Goats and Cattle; and High value crop production, e.g. hydroponics and bio-fuels.
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4.10 Analysis of the Chris Hani Agricultural strategies and policies
In recognition that CHDM has a comparative advantage in agriculture and forestry, the District has strategically and pro-actively taken steps to ensure that continuous support is given to this sector. Below is a summary table of some of the strategies for priority areas and the time frames associated with agriculture and forestry projects in the District. However, in order to support its case for the establishment of an SEZ in the area, the District will need to speed up the implementation of these strategies and put realistic time frames to them, as the strategies can be enablers in this process. Also, the District will need to choose clusters that will yield better value to the economy of the District and focus its resources and strengthen those sectors rather than trying to focus on too many things at once. The table below highlights the strategies identified to support the agricultural sector in the region.
Table 4.6: Chris Hani District agricultural plans and strategies
POLICY/STRATEGY PRIORITY AREA OBJECTIVE District Development Agenda 5 priority areas of To guide development in the government: Chris Hani area focusing on the -Creating decent work strengths of all eight local & sustainable municipalities. livelihoods -Education -Health -Rural development, food security & land reform -Fight against crime and corruption. Chris Hani Regional Economic District wide and all To grow the Chris Hani Development Strategy sector inclusive economy through the economic strategy development of all sectors of the economy. Chris Hani Corridor All inclusive Development along the Development Plan development and identified corridors of the infrastructure district Agro industrial plan Development of Establishment of agro cluster agricultural industries based industries
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Forestry Development plan Forestry development To prioritise forestry as a and its value chain sector that contributes to reduction of unemployment and economic development Crop production and agro To increase the Improving crop production processing plan contribution of through introduction of new agriculture to the cultivars and supply of district economy production inputs. Livestock development plan To increase Improving the conditions of contribution of livestock through capacity livestock to the district building, medication and value economy addition Source: Chris Hani District Municipality IDP, 2015
4.10.1 The Chris Hani District Development Agenda Figure 4.16: The Chris Hani District Development Agenda (DDA)
Source: Chris Hani District Municipality IDP 2015
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Above is an illustration of the CHDM district development agenda, which is anchored on the development of all its eight local municipalities with Lukhanji as an industrial hub. The CHDM district development agenda identifies the competitive advantage of each local municipality as well as the competitive advantage of Queenstown, in Lukhanji as the proposed hub.
The district development agenda approach is a response to the uncoordinated and disintegrated support currently provided by other spheres of government and the District financially and otherwise which yields little or no sustainable results. (CHDM, 2015). The above illustration indicates that the competitive advantage of the district is agriculture.
Below is the interpretation of the CHDM district development agenda as per the CHDM feasibility study report of 2015.
Lukhanji Local Municipality
Lukhanji LM accounts for 40% of the District’s economic activity and is more urban than other LMs in the District. The LM already has significant industrialisation potential with infrastructure and transport linkages to national and international markets. It is also strategically situated as it has access to key national roads and a secure railway line. Lukhanji’ s road network links it easily with two major ports and IDZs in South Africa which are the East London Port and IDZ and the Coega IDZ and Port of Ngqura.
Inxuba Yethemba Local Municipality
Inxuba Yethemba LM consists of the urban centres of Cradock and Middleburg, with harsh climatic conditions and karoo vegetation. The region is ideal for smaller livestock farming. The average rainfall is usually less than 400 mm per annum, which makes irrigation vital for crop farming in this area. The LM has a competitive advantage in irrigation farming and the production of lucerne, oats, vegetables, dairy and piggery. Furthermore, the dry land farming such as beef, sheep, goats and ostrich are distinctive in the area and the quality of wool produced in the area is world renowned. Inxuba Yethemba also has access to a strong road network to both the Port of Ngqura and Gauteng.
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Intsika Yethu Local Municipality
Intsika Yethu LM falls within the historic former Transkei administration, where subsistence farming remains the order of the day. The area is endowed with fertile land and offers great potential for agriculture. However, one of the key challenges in this area is the existence of communal and informal land ownership systems.
Key agriculture industries are cattle, grain, poultry and dried fruit, forestry which offers potential for downstream activities such as sawmilling and furniture manufacturing.
Emalahleni Local Municipality
Emalahleni LM consists of three main towns, Lady Frere, Indwe and Dordrecht and about 34% of the land area is suitable for moderate to limited crop production, while the rest of the area is best suited for livestock farming. Lack of access to suitable roads is the main challenge in this area as only 10% of the LMs land mass is serviced with adequate roads. Key areas of agricultural opportunity in the region include wool, beef, sorghum, lucerne, peach, apricot and other irrigated crops. The LM has earmarked the potential for coal mining in the surrounding area of Indwe and there is an infrastructure upgrade required for the Tshatshu irrigation scheme to be successful.
Engcobo Local Municipality
Engcobo is one of the CHDM’s LM which has a potential in agriculture. The LM has potential in products such as sheep, goats, cattle, sunflowers and maize. The rainfall conditions in the area support dry-land crop farming such as maize and beans. The LM also has access to four irrigation systems and some potential in forestry downstream activities such as charcoal and furniture manufacturing.
Sakhisizwe Local Municipality
Sakhisizwe consists of Cala, Elliot and the surrounding rural villages and is one of the LMs that have potential in agriculture and agro-processing. However, the area has a poorly linked road network and the rail system needs to be rehabilitated. Sakhisizwe is one of the LMs that have potential for coal mining in the District.
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Inkwanca Local Municipality
Inkwanca LM consists of Sterkstroom and Molteno. The area’s climate is conducive to large-scale sheep and game farming as it is characterised by cold temperatures during winter but a much more moderate summer climate. This area forms part of the District’s coal mining belt.
Tsolwana Local Municipality
Tsolwana LM consists of Hofmeyer and Tarkastad and is home to two nature reserves. The LM land is suitable for game, cattle and sheep farming. The area is also endowed with historical sites and the liberation route, which makes Tsolwana attractive to tourists.
4.10.2 The Hub and Spoke approach
Figure 4.17: an Illustration of the supportive production nodes which are in the local municipalities around the central industrial hub
Source: The Chris Hani District feasibility study 2014
The operational principles of the hub and spoke model are:
The hub denotes the industrial hub and the spokes denotes raw material suppliers in the eight LMs. Spokes are referred to as the primary nodes of production; Raw materials will be consolidated and moved towards the hub for processing; 112 | P a g e
The model emphasises regional integration with a core capacity (hub), while building capacity through spokes; Spokes will retain higher employment and production footprint.
4.10.3 The Cluster Approach
The CHDM development agenda approach as per the illustration in figure 4.16 above can be interpreted as proposing a cluster approach in the local municipalities hence an understanding of this approach is important.
The most basic definition of industrial clusters is that they are “groups of firms within one industry based in one geographic area” (Swann and Prevezer cited in Vom Hofe & Chen, 2006: 9). (Hill and Brennan, 2000) define competitive industrial clusters as “concentrations of competitive firms or establishments in the same industries”. An example of a geographical cluster is the EC automotive and components industry. The South African automotive industry was originally located at major ports, where imported components were assembled before the final products were dispatched to the markets. There were specific reasons why the South African automotive assemblers located close to ports, but these did not initially represent industrial clusters of linked and interdependent firms. An industrial cluster is thus more than simply a geographical concentration of industries in a particular economic sector.
The definition of industrial clusters has been expanded to include ‘complementary services’ that can add further value to the operations of the sector. This definition emphasises the vertical connections between industries and their support services and represents a geographically bounded concentration of similar, related or competing businesses with active channels for business transactions, communications and dialogue that share specialised infrastructure, labour markets and services, and that are faced with common opportunities and threats (Kuper, 1997). Such firms may benefit from the so-called “agglomeration economies (savings)” or as clusters of businesses generally found in large cities (urbanisation economies).
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In South Africa, the Wool and Mohair Cluster initiative included not only the related industry partners, but also the growers, organised labour and the wholesale and retail trade sector. The example of the Wool and Mohair Cluster illustrates, that not all clusters are geographically concentrated.
This cluster initiative brought together its partners from across the country. While most of the growers and brokers are concentrated in the EC, several of the processing firms are based in Gauteng and other centres and the textiles and clothing firms include those in Durban and Cape Town.
In 1997, the DTI made concerted efforts to promote the notion of industrial clustering in order to improve South Africa’s competitiveness. It established a cluster secretariat and embarked on a nationwide awareness campaign and capacity building initiatives and, by November of that year, over one thousand (1000) participants had attended national cluster workshops. Also, DTI released a promotional brochure entitled Co-operating to Compete: The South African Cluster Programme’ (DTI, 1997).
4.11 Global agricultural markets overview
Agriculture has long been a contentious sector of the global economy with both developed and developing countries employing policies to protect and promote local production. Despite repeated commitments and ongoing negotiations at the World Trade Organisation (WTO), global agriculture remains a highly distorted market (Coega Development Corporation, 2014).
The major economic growth in developing countries over the past two decades has had a profound impact on agriculture. Most significantly, the combination of growing populations, higher incomes, urbanisation and changing diets has pushed commodity prices upwards. At the same time, domestic productivity in developing countries has improved tremendously such that the share of agricultural production from developing countries has increased and will continue to do so for the foreseeable future (CDC, 2014).
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Global agricultural trade will continue to increase with developing countries capturing most of the export growth. However, the forecasted growth in global agricultural production for the period 2013-2022 of 1.5% per annum is lower than the 2.1% average of the previous decade (SA National Government, 2011).
Food deficit regions including Asia, the Middle East and Africa will exhibit the strongest growth in demand for agricultural imports due to increases in population and growing wealth in these regions. However, growth in China will continue to exert the greatest influence on global markets and will depend on increased domestic productivity to offset the demand for imports.
On the supply side, the traditional agricultural powerhouses of the USA, EU, Canada, Australia and New Zealand will remain important players. However, emerging producers such as South America, Eastern Europe and Central Asia will grow in importance.
In terms of agricultural products, trade in crops still dwarfs livestock trade. This is despite the fact that, between 1961 and 2008, the share of the world’s agricultural export value coming from livestock products (meat, eggs and dairy) increased from 11% to 17%. However, the portion of livestock is expected to grow further as these products continue to make up an increasingly high proportion of diets in developing countries
4.12 Agricultural Market Analysis in South Africa Agriculture has always been an important component of SA’s economy, although its contribution to GDP has steadily decreased from 10% of GDP in the 1960s to a current contribution of around 3%. However, the sector’s broader value is evidenced by the fact that it accounts for approximately 10% of formal employment (as well as a high proportion of informal jobs (SA National Government, 2011).
South Africa’s range of environments and climatic conditions means that there is a wide variety of agricultural products. While maize is the largest locally produced crop, approximately 80% of SAs arable land is suitable for livestock farming and this contributes almost half of total agricultural output (DTI, 2014).
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Table 4.7: Key South African Agricultural Statistics, 2012 GDP $402.1 billion
GDP Growth 3% per annum
Population 50 million
Value of agricultural sector $12.06 billion
Proportional size of agricultural sector 3% of GDP
Total land area 122.3 million hectares
Percent of arable land 13.5%
Contribution of agricultural sector to exports 8%
Percent of labour force employed in agriculture 10%
Source: Frost & Sullivan
Besides the growth in demand from the rest of Africa – stemming from the growth in population and material well-being – another key issue arising with respect to agriculture is the effective use of arable land. This entails both the impact of foreign companies – and indeed, countries – purchasing land across the continent – as well as concerns relating to water scarcity and national food security. Thus, while SA’s agricultural sector is well-positioned to take advantage of the growth opportunities on the continent, it is also important to be aware of the potential issues.
4.13 Economic Performance of Chris Hani District
4.13.1 CHDM Fixed Capital Stock
Fixed Capital Stock (FCS) reflects the actual value of the stock of fixed assets in the economy and, as such, provides an important indication of overall investment patterns and wealth. It includes buildings, installations, transmission devices, machinery, equipment, means of transport, tools, production and sales implements, draft animals and commercial stock. A nation uses capital stock in combination with labour to provide services and produce goods, and is critical as an enabler of economic growth. This section looks at the level of FCS by economic sector and asset type in CHDM, with particular emphasis on its LMs. 116 | P a g e
4.13.2 Fixed Capital Stock by Economic Sector
Table 3 below, highlights information on FCS proportions by economic sector in the EC, CHDM and its LMs in 1996, 2001 and 2011. On average, total assets in CHDM increased by 4.1% compared to a 4.4% increase in the Province between 1996 and 2011. The tertiary sector maintained the highest proportion of total assets in the province, CHDM and its LMs over the years. This sector has accounted for more than 77% of the total assets in the District over the years, followed by the secondary sector, while the share for the primary sector remained below 10% (CHDM, 2014).
In 2011, assets for the tertiary sector in CHDM increased slightly to reach R1.39bn, while still representing only 8% of the Province’s tertiary sector. Over the years, FCS of the primary sector in the District has plummeted from R95.7m in 1996 to R45.6m in 2011 (CHDM, 2014). This indicates a substantial decrease in investment in the primary sectors, such as agriculture, forestry and fishing industries as well as mining and quarrying industries which has a substantial impact in CHDM, as it is a rural region.
Five out of the eight LMs have exhibited the same characteristics as the CHDM with regard to the performance of the three sectors. Indeed, the tertiary sector represented the lion’s share (more 74% in each LM) of the total assets, followed by secondary sector, with the primary sector representing the lowest proportion for the reviewed period. In 1996 and 2001, the primary sector had the second-highest share of total assets in Inxuba Yethemba, Tsolwana and Inkwanca LMs. The primary sector has not only experienced the lowest share of total assets but the value of those assets has been decreasing in all LMs over the years. Despite its large primary sector assets compared to other LMs, Inxuba Yethemba LM experienced a significant decline of assets from R37m in 1996 to only R11.4m in 2011 (CHDM, 2014).
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Table 4.8: Proportion of Capital Stock by Sector in CHDM, 1996-2011 1996 2001 2011
Prima Second Tertia Prima Second Tertia Prima Second Tertia ry ry ry ry ary ry ary ry ary % Share
Eastern 4.8 25.9 69.2 4.0 28.5 67.5 2.4 27.9 69.7 Cape Chris Hani 9.9 12.7 77.4 8.2 11.9 79.9 2.6 19.0 78.4 Inxuba 20.3 11.1 68.6 17.8 12.4 69.8 4.0 16.4 79.6 Yethemba Tsolwana 42.8 9.9 47.3 32.7 8.1 59.2 11.5 11.1 77.4 Inkwanca 29.1 23.0 47.9 28.8 10.9 60.3 10.1 28.9 61.0 Lukhanji 2.8 14.1 83.0 2.2 13.9 83.9 1.1 26.7 72.3 Intsika 6.1 10.6 83.3 4.5 8.7 86.8 1.8 12.5 85.7 Yethu Emalahleni 6.1 14.1 79.8 4.7 12.5 82.8 2.3 14.5 83.2 Engcobo 3.6 7.4 89.0 2.7 7.0 90.3 2.2 11.4 86.4 Sakhisizwe 12.0 13.2 74.9 9.8 11.5 78.7 3.1 14.4 82.6 Source: Own calculations based on Quantec Research data
4.13.3 Gross Value Added (GVA) for EC and CHDM This section provides a trend analysis of the sectorial growth and contribution for the EC, CHDM and its LMs. These trends can be used to assess past performances and, to a certain extent, plan medium to long-term strategy.
In recent years, the economies of both the EC and CHDM have been growing slowly, registering less than 3% since 2009. In 2011, the EC economy grew by 2.6%, while CHDM registered 2.4%. Over the years, the District’s contribution to the provincial economy has been consistently below 8%.
Over the years, Lukhanji LM has proved to have a much stronger economy compared to other LMs in the District. In 2011, approximately 40% of the District’s economic activity came from Lukhanji LM followed by Inxuba Yethemba LM (15.7%) and Intsika Yethu LM (13.8%), while Inkwanca LM made the least contribution (2.5%). During this period, Intsika Yethu’s economy grew faster than any other LM within the District, while Emalahleni LM contracted by 0.5%.
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Table 4.9: Total GVA in CHDM, 1996-2011 1996 2001 2011
R million Annual % % R million Annual % % R million Annual % % Share Change Share Change Share Change
Eastern 86 954 3.3 96 989 2.7 131 673 2.6 Cape Chris 6 725 2.9 7.7 7 491 6.3 7.7 9 616 2.4 7.3 Hani Inxuba 1 131 3.9 16.8 1 312 9.2 17.5 1 514 1.4 15.7 Yethemba Tsolwana 237 1.8 3.5 274 9.1 3.7 336 4.1 3.5 Inkwanca 210 3.7 3.1 252 10.1 3.4 239 2.8 2.5 Lukhanji 2 747 3.1 40.9 3 072 6.2 41.0 3 879 1.7 40.3 Intsika 729 0.9 10.8 749 3.6 10.0 1 324 5.2 13.8 Yethu 607 0.4 9.0 587 1.0 7.8 539 -0.5 5.6 Emalahleni Engcobo 633 3.3 9.4 716 6.1 9.6 1 209 4.1 12.6 428 5.8 6.4 521 7.2 7.0 569 1.7 5.9 Sakhisizwe Source: Own calculations based on Quantec Research data
4.13.4 Primary Sector GVA
During the period under review, the primary sector has shown little contribution (less than 6%) at both provincial and district level. Following the provincial GVA trend in the primary sector, CHDM has experienced a gradual downward trend in its primary sector over the years. In 2011, the EC’s GVA for the primary sector grew by 2% compared to only 0.9%for CHDM. The District’s contribution to the total primary sector of the province has been consistently declining since 2001, reaching the lowest share of 7.8% in 2011.
In 2011, the primary sector grew by less than 2% in all LMs in CHDM with Emalahleni LM experiencing a contraction of 0.2%. Inxuba Yethemba LM dominated the primary sector in the District with a contribution of 26.1%, followed by Tsolwana LM (16.2%) and Lukhanji LM (16.1%). However, GVA in the primary sector has been declining in all LMs since 2001. In Inxuba Yethemba LM, the primary sector GVA fell from R175.2m in 2001 to only R59.7m in 2011. 119 | P a g e
The primary sector is dominated by the agriculture, forestry and fishing (AFF) industry, as this represented more than 80% of primary sector activities in each LM. In 2011, the AFF industry was dominated by Inxuba Yethemba LM with a contribution of 26.85 of the total industry for the District. However, the AFF industry saw very low growth of less than 2% in all LMs during this period. Therefore, the establishment of an agro-processing SEZ will contribute towards reviving a vibrant primary sector in the District. The following table highlights GVA for the primary sector in the EC, CHDM and its LMs in 1996, 2001 and 2011.
Table 4.10: GVA for Primary Sector in CHDM, 1996 - 2011 1996 2001 2011 (Rmillion) (Annual (% (Rmillion) (Annual (% (Rmillion) (Annual (% % Share) % Share) % Share) Change) Change) Change) Eastern 2 341 -1.5 2 875 23.2 2 953 2.0 Cape Chris Hani 352 -3.0 15.0 425 23.9 14.8 229 0.9 7.8 Inxuba 133 -1.5 37.8 175 25.7 41.3 60 0.8 26.1 Yethemba Tsolwana 60 -7.9 17.0 63 24.3 14.8 37 1.2 16.2 Inkwanca 37 1.7 10.6 54 27.3 12.8 23 1.5 10.0 Lukhanji 42 -5.4 11.9 48 25.2 11.3 37 1.5 16.1 Intsika Yethu 24 -1.9 6.9 21 9.5 5.0 24 0.2 10.5 Emalahleni 18 -6.3 5.0 18 20.1 4.2 10 -0.2 4.2 Engcobo 12 -1.4 3.4 12 12.1 2.7 24 0.7 10.4 Sakhisizwe 26 -0.4 7.4 34 23.1 8.0 15 0.2 6.6 Source: Own calculations based on Quantec Research data
4.13.5 Secondary Sector GVA
The secondary sector has been the second largest contributor to the economy of both the EC and the District over the years. In 2011, the secondary sector contributed 20.8% to the total economy of the province, while its contribution to the CHDM total economy was around 12.8%. During the same period, the secondary sector in the District contracted by 1% with a contribution of only 4.5 % to the provincial secondary economy.
In 2011, seven out of eight LMs in CHDM’s secondary sector economy contracted.
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Lukhanji LM is leading this sector (representing a lion’s share of 47.5%), followed by Inxuba Yethemba Local Municipality with 16.9%. Unlike the primary sector, the GVA for the secondary sector has been on an upward trend over the years.
Despite its negative growth in 2011, the manufacturing industry dominated the secondary sector in all LMs in CHDM. Approximately 48% of the total manufacturing industry in the District came from Lukhanji LM, as shown in Table 4.10 above.
Table 4.11: Secondary Sector GVA in CHDM, 1996 - 2011
1996 2001 2011
(Rmillion) (Annual (% (Rmillion) (Annual (% (Rmillion) (Annual (% % Share) % Share) % Share)
Change) Change) Change) Eastern 18 163 -0.4 21 797 6.0 27 373 0.7 Cape Chris Hani 687 0.7 3.8 812 10.9 3.7 1 230 -1.0 4.5 Inxuba 115 5.8 16.8 160 15.0 19.7 208 -0.9 16.9 Yethemba Tsolwana 23 -2.2 3.4 24 6.9 3.0 32 -0.6 2.6 Inkwanca 41 -8.1 6.0 31 7.2 3.8 35 -2.0 2.8 Lukhanji 310 2.1 45.2 393 11.2 48.4 584 -0.9 47.5 Intsika Yethu 57 -1.6 8.3 54 5.7 6.7 177 -1.4 14.4 Emalahleni 59 -6.1 8.6 54 6.1 6.6 72 0.2 5.8 Engcobo 46 -2.6 6.7 48 10.7 5.9 80 -1.9 6.5 Sakhisizwe 35 6.1 5.0 48 11.3 5.9 43 -1.4 3.5 Source: Own calculations based on Quantec Research data
4.13.6 Tertiary Sector GVA
In 2011, the tertiary sector contributed 77% to the total provincial economy compared to 84.8% contribution in the CHDM. The tertiary sector in the province grew by 3.1%, while the District saw a very similar improvement of 3%. CHDM represented only 8% of the province’s total GVA for the tertiary sector in 2011.
Approximately 40% of the tertiary sector GVA came from Lukhanji LM followed by Inxuba Yethemba LM with 15.3%. Over the years, there has been an upward trend in the tertiary sector GVA in seven LMs, with the exception being Emalahleni LM. 121 | P a g e
The GVA of the tertiary sector in Emalahleni LM has been steadily contracting over the years. In 2011, Intsika Yethu LM showed the fastest growth (6.5%) compared to any other LM in the District.
General Government Services (GGS) dominated the tertiary sector in all eight LMs. In 2011, Lukhanji LM dominated (39.9%) total GVA for the tertiary sector in CHDM. During this period, GGS grew faster than any other industries in the tertiary sector in all LMs except Emalahleni which saw a contraction of 6.9%.
Table 4.12: GVA for Tertiary Sector in CHDM, 1996 - 2011 1996 2001 2011
(Rmillion) (Annual (% (Rmillion) (Annual (% (Rmillion) (Annual (% % Share) % Share) % Share) Change) Change) Change) Eastern 66 450 4.5 72 317 1.0 101 347 3.1 Cape Chris Hani 5 686 3.6 8.6 6 254 4.7 8.6 8 157 3.0 8.0 Inxuba 882 4.5 15.5 976 5.8 15.6 1 247 1.8 15.3 Yethemba Tsolwana 154 6.8 2.7 187 5.0 3.0 267 5.1 3.3 Inkwanca 131 8.7 2.3 167 5.9 2.7 181 3.9 2.2 Lukhanji 2 395 3.4 42.1 2 631 5.2 42.1 3 258 2.2 39.9 Intsika 648 1.3 11.4 673 3.3 10.8 1 122 6.5 13.8 Yethu Emalahleni 530 1.4 9.3 515 -0.1 8.2 458 -0.7 5.6 Engcobo 575 4.0 10.1 657 5.7 10.5 1 106 4.7 13.6 Sakhisizwe 367 6.2 6.4 439 5.8 7.0 510 2.0 6.3 Source: Own calculations based on Quantec Research data
4.13.7 Trade Analysis
The importance of international trade has been reinforced by the rapid pace of globalisation and industrialisation across the globe. International trade includes the exchange of goods and services between countries. This section analyses international trade trends in the EC and more particularly in CHDM.
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4.13.8 Trade Balance in CHDM
Despite being dominated by trade deficits for many years, CHDM has experienced a net positive trade balance over the past two years. The highest net positive trade balance was achieved in 2012 (R192 million), significantly higher than the R104 million surplus in the previous year. The trade balance was largely driven by changes in exports for manufacturing and agricultural produce like vegetable products.
In 2012, the District saw significant growth in both exports and imports. The export value grew by 88.5% from R209.5 million in 2011 to R395 million in 2012, while imports grew by 92.4% from R105.5 million to R202.9 million respectively over the same period. Table 4.13, below, shows that there has been a significant upward trend in exports in the District since 2012, with manufacturing and agricultural products as key drivers. This is according to the (ECSECC, 2013).Table 4.12 below shows the trade balance for the EC and CHDM in 2001, 2006 and 2012.
Table 4.13: Trade Balance for CHDM, 2001 - 2012 2001 2006 2012
(Rbillion) (Annual % (Rbillion) (Annual % (Rbillion) (Annual % Change) Change) Change) EC Trade Balance -0.886 -6 -8.3
Export 16.5 -28.4 25.9 7.7 29.5 -13.7
Import 17.4 24.8 31.9 18.0 37.8 5.6
Trade Balance -0.005 -0.099 0.192
CHDM Export 0.019 -14.5 0.020 -60.5 0.395 88.5
Import 0.024 28.5 0.119 34.6 0.203 92.4
Source: Own calculations based on Quantec Research data
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4.13.9 CHDM Export Value by Region
There has been a shift in export destinations, as the focus has moved from the Americas to Europe in recent years. In 2012, Europe accounted for 55.4% of the total commodities exported from the District. During this period, export to all regions increased significantly, except Africa which showed a negative growth of 21%. Exports from CHDM to other African countries accounted for only 1.3% of the total export value as it declined from R6.5 million in 2011 to R5.1 million in 2012. Table 4.14, below, shows exports from the CHDM region in 2001, 2006 and 2012
Table 4.14: Export Value by Region, 2001 - 2012 2001 2006 2012
(Rmillion) (Annual % (% (Rmillion) (Annual (% (Rmillion) (Annual (% Change) Share) % Share) % Share) Change) Change) Africa 0.357 101.1 1.9 1.7 25.6 8.2 5.1 -21.0 1.3 Americas 13.7 563.7 71.8 8.1 -78.6 40.0 126.4 38.7 32.0 Asia 2.7 -70.8 14.3 1.9 -75.5 9.5 37.6 68.6 9.5 Europe 2.3 -73.8 11.8 5.8 81.7 28.8 218.8 157.8 55.4 Oceania 0.038 -98.2 0.2 2.7 173.7 13.5 7.0 48.2 1.8 Source: Own calculations based on Quantec Research data
4.13.10 CHDM Import Value by Region
CHDM has been mostly importing its goods from Europe followed by Asia and the Americas, while Africa accounted for the least imports. In 2012, approximately 68% of total imported goods came from Europe. Import value from Africa declined by 66.6% in 2012. Table 4.15 below, shows imports into the CHDM by region in 2001, 2006 and 2012.
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Table 4.15: Import Value by Region, 2001 - 2012 2001 2006 2012
(Rmillion) (Annual (% (Rmillion) (Annual (% (Rmillion) (Annual (% % Share) % Share) % Share) Change) Change) Change) Africa 0.277 84.5 1.1 1.5 344.0 1.3 0.1 -66.6 0.1 Americas 3.7 176.8 15.1 8.0 -15.3 6.7 23.0 41.5 11.3 Asia 7.0 0.5 28.6 19.1 129.8 16.0 38.1 16.5 18.8 Europe 9.6 58.6 39.5 89.8 27.9 75.3 137.4 145.6 67.7 Oceania 3.812 -14.8 15.6 0.7 110.2 0.6 4.3 2766.0 2.1 Source: Own calculations based on Quantec Research data
4.13.11 CHDM Export Value by Commodities
Table 4.16 below shows that exports from CHDM are dominated by manufacturing and agricultural products, in the form of vegetables, live animals and animal products. In 2012, vehicles, aircraft, vessels and associated transport equipment accounted for 61.6% of the total exports from the District.
Exports of vegetable produce increased significantly from R31.4 million in 2011 to R81.6 million in 2012, representing 20.6% of total exports from the District. Table 4.16 below shows exports for the top five commodities from the District by region in 2001, 2006 and 2012.
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Table 4.16: Exports for Top Five Commodities, 2001 - 2012
2001 2006 2012
(Rmillion) (Annual % (% (Rmillion (Annual (% (Rmillion (Annual (% Share) Change) Share) ) % Share) ) % Change) Change) Vehicles & - - - 0.332 -23.3 1.6 243.1 127.9 61.6 accessories2 Vegetable - - - 0.398 -51.1 2.0 81.6 160.0 20.7 produce
Wood & - - - 0.001 -99.1 0.0 33.1 32.0 8.4 accessories5 Live animals, 0.017 -84.5 0.1 2.9 1024.1 14.2 20.1 33.6 5.1 animal products
Machinery & 10.444 -22.2 54.7 12.9 -10.0 63.6 6.7 -67.4 1.7 mechanical appliances &accessories 6 Source: Own calculations based on Quantec Research data 2014
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4.15 Summary of the promotion of LED in the Chris Hani District and conclusions
The Chris Hani District, to a certain extent, displays the dual economy aspect of the national economy and is largely evident in the Eastern Cape with areas that are largely underdeveloped and rural with only the two metro’s namely; Nelson Mandela Bay and Buffalo City largely developed areas.
It is evident that at the root of South Africa’s developmental struggle is the structural legacy of underdevelopment and deprivation inherited from colonialism and apartheid which includes:
the dispossession of land and property The deprivation of the requisite infrastructure to enable development the disruption of families and social institutions the undermining of opportunities for the majority of the population the disruption of organic indigenous intellectualism the denial of the right to self-definition and determination and the systematic destruction of self-worth
The cumulative effects of this legacy feed into each other to worsen the condition of the dispossessed and poor
It is also evident that that South Africa has a variety of policy imperatives that seek to transform the economy whilst reducing poverty, unemployment and inequality although there is no consistency in implementation or signs of panic hence not giving time to these policies to yield results over time. The evidence of this is the 7 economic policies legislated and implemented within a period of 21 years from 1994 to2015.
It is obvious that once there is no stability at a policy implementation level the confusion directly affects the local space as policies provide guidance to local implementation. The White Paper on local government that gives the local economic development mandate to local government, with no specific reference to the funding of local government has not assisted as this function is now viewed as an unfunded mandate hence no focus on it by municipalities.
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Currently each municipality is dependent on whether LED is a priority of the ruling party in that municipality which is evident in the case of Chris Hani District.
What is worth noting is the persisting rife state of poverty in South Africa especially in the rural areas where the other determinant variables like education, health and other socio economic factors are minimal or non-existent or inadequate. The report further states that poverty and inequality in the rural areas can only be reduced in two ways namely; cash transfers from various grants or through meaningful participation of the poor in the economic production process.
It is also noted that the LED plans for CHDM provide emphasis on the meaningful participation of local people in the economic production process. This gives priority to the agricultural sector and has been identified as a competitive advantage of the district. The most important consideration must be in the unblocking and the inadequacies that are impediments in the implementation of these agricultural strategies and policies towards a sustained local economy.
The researcher acknowledges that whilst the agricultural sector has the capacity to provide sustained livelihoods and much needed employment for the poor, it can only succeed through a joint effort by the government, stakeholders and all farmers. The following are noted as the three (3) conclusions regarding the necessary conditions that must prevail for the realisation of a people-oriented agricultural strategy namely;
Land reform: This is a deliberate attempt to reorganise and transform agrarian systems, with the intention of fostering a more equal distribution of agricultural incomes and facilitation of rural development. Supportive policies: Though land reform is essential, it is likely to be counterproductive and ineffective unless there is real transformation in rural institutions that control production, in government agencies must provide the necessary support, including market regulations, and this can be achieved through supportive policies.
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Integrated development objectives: Agricultural development does not take place in a vacuum but in an environment where there are focused intentions and broader objectives for rural development and this includes housing, roads, health facilities, education and rural industrialisation. The Chris Hani development agenda (see figure 4.16) is in agreement with this as the district agenda identifies other enablers namely; - Local beneficiation as the cornerstone of the agenda - Water infrastructure backlogs to be reduced - Energy security needs to be addressed - Transport linkages need to be maximised
It is not surprising though that the CHDM in its plans captures all these elements mentioned by other authors as conditions to realise agricultural and rural development, which indicates a focused approach by the district to realise LED through agricultural development.
It can be concluded therefore that the economic instruments used by the district are not sufficient to achieve the required results. It can also be argued that although the conditions at a local level are ripe for development, yet the conditions at other spheres of government are not focused at the CHDM in order to provide the required support to achieve the desired outcomes.
There is evidence that by 2014 more than half of the population of the developing world will still be located in rural areas and, therefore by restoring a proper balance between urban and rural economic opportunities and creating the conditions for broad popular participation in development efforts, developing nations would have taken a giant step towards the realization of the true meaning of development. In conclusion, the national and provincial spheres of government in the implementation of the national policies, must consider creating space for the creation of a balanced approach between urban and rural economic opportunities, as well as the resources required to achieve this objective.
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In this chapter, the researcher has been able to draw a picture that shows that the agricultural sector has a competitive advantage in the Chris Hani District and, through the analysis of the agricultural sector, its supportive policies and plans, market analysis and available natural resources, there is potential to promote LED. The next chapter presents the summary of the study and findings, conclusions and recommendations for this study.
It is also evident in this chapter that entrepreneurship as another sphere of LED has a great potential to boost the local economy. This can be achieved when the total value chain of the agricultural process is explored, such that Small Micro and Medium Enterprises (SMME) can find space to participate throughout the value chain. Various authors agree that in any economy the participation of SMMEs not only provides much needed jobs but encourages self-employment as an option to job seeking.
One of the conclusions that can be drawn from this chapter are the persistent infrastructure backlogs in the district in terms of water, sanitation, electricity and roads that are the key drivers of local economic development. It is also noted that water and sanitation do not form part of an integrated infrastructure development programme with the result that the water schemes and are built without access to roads and electricity. Housing development programmes are also not linked to water supply and electricity supply.
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CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction The previous chapter discussed the research findings derived from the manner in which LED is promoted in the Chris Hani District. The study was undertaken because of the persisting high levels of poverty, unemployment and inequality in Chris Hani District. The purpose of this study was to identify the constraints to economic activities in the Chris Hani District, such that these can contribute to local economic development. The research went further to do an analysis of the initiatives undertaken by the District to promote LED.
In this chapter, the research findings are outlined with conclusions on the purpose of the research with recommendations and further research on this study.
5.2 Summary of findings The Chris Hani district is well endowed in natural resources that support agricultural development. This is reflected in the abundance of water resources, conducive soil conditions, and climate and rainfall patterns. In this regard, agricultural development is prioritised in all its strategies and plans even at a provincial government level agriculture in the district is viewed as a potential key contributor in the GDP of the province. The findings suggest that whilst the environment at the district is conducive for the development of the agricultural sector it has not yielded any results yet; its contribution to the local GDP is minimal at only 3%, as well as its contributions to all other key economic indicators as reflected in the study.
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5.3 Conclusions on objectives
5.3.1 Conclusions on the identified constraints to local economic development in the Chris Hani District.
The Chris Hani District is largely rural with small towns and still underdeveloped as it still lacks the basic infrastructure to provide decent livelihoods for the communities. The area, due to its underdevelopment, lacks requisite infrastructure that can be used to propel or as a driver for LED; the roads linking the various towns and rural communities are bad gravel roads that are sometimes not able to provide access due to bad weather. It is also noted that access to electricity though in advanced stages in some areas, is for household use and not able to provide for industrial purposes.
The District development Agenda (DDA) which guides development in the district identifies the comparative advantages of each local municipality as well as identifies the enablers of development for the region. The DDA provided the researcher with critical information on the implementation of the district strategies to ensure that the focus is not only on the prioritized sectors per local municipality but on locality development which is a holistic approach to rural development. Therefore, the holistic development of the area must include basic infrastructure as well as other public services namely; education, health services, etc.
The Chris Hani district has a competitive advantage in the agriculture sector. This has to be a priority in order to leverage on local resources as one of the characteristics of LED. The above statement is supported by the outline of the manifestations of LED in the same chapter where LED is expected to reduce poverty and inequality, transform institutions and increase LED governance. In the Chris Hani District this has still not been achieved and the identified restriction in this regards is the implementation approach of government legislation.
The lack of clarity and coordination in the various roles of the spheres of government with regards to implementation and funding of LED whilst there are various legislations that pronounce on LED, these roles are often conflicting, lack clarity or overlapping. The findings suggest that this serious gap in the legislation is a strong motivational factor for lack of accountability in the LED sector at all levels of government.
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In South Africa, growth is championed by the public sector (government) with limited capacity whilst the private sector is a stakeholder in the process. In this regard, the private sector has capital resources to invest in the requisite infrastructure for economic development. Therefore,
Private-public partnerships are vital for the growth of the economy of the district.
5.3.2 Conclusions on the plight of Chris Hani District municipalities.
Arguments were presented on the definition of LED as well as its characteristics wherein leveraging on development on local resources was highlighted as of the key characteristics of LED as well as the argument that LED achieves better results if guided by a strategy/plan. However, in the Chris Hani district, it can be argued that whilst LED strategies are in place to develop the CHDM community and have been in place since 2001; LED has still not yielded the desired outcomes.
The community in the district is still largely dependent on social grants as well as cash from migrant labourers. It is further noted that in the main the Chris Hani community still survives on subsistence farming. This study further notes that the population numbers in the district are slightly declining due to people looking for opportunities in the bigger cities.
Unemployment figures in the Chris Hani district slightly dropped from 38% to 34%b in between 2002 and 2012 whilst the human development index (HDI) during the same period has increased from 0.483 to 0.589. The findings further reveal a slight reduction of the Gini Coefficient that measures the inequality rate from 0.63 to 0.58 during the period of 2002 to 2012 whilst the poverty rate has also reduced from 67.51% to 45.41% indicating a 22% reduction of people living in poverty.
The requisite development institutions are established to drive LED such as the Chris Hani Cooperative Development Centre (CHCDC) established in 2012 as well as the Chris Hani Development agency established in 2013. These are municipality funded entities that should be able to propel economic development with a special emphasis to the agricultural sector yet these institutions. These institutions must be able to drive sustainable poverty alleviation projects and be at the centre of coordinating these projects.
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All the legislated structures are in place in the district to ensure alignment and coordination of LED programs. These governance structures though some of them are legislated lack the impetus to provide seamless and well supported LED programs between the various spheres of government, non-governmental organisations, community structures and the private sector. The result of the inadequate representation by local structures and lack of alignment is the persistent poverty and inequality due to poverty alleviation projects that are not sustainable.
Skills development must be the backbone or foundation for industrial growth. In the Chris Hani District lack of skills due to the low levels of education have been identified and is further noted that there is drastic shortage of skills in the prioritised agricultural sector.
5.3.3 Conclusions on what has been done to promote local economic development in the Chris Hani District.
There are spheres of development that have been critical in the district, namely the locality development, Special Economic Zone (SEZ) and livelihood development. The various local strategies and policies were analyzed to get a sense of whether these policies or strategies have any connection to the local space in terms of implementation or acknowledging the local resources and therefore providing guidance to the local sphere of government. The initiative of having SEZs is aimed as propelling LED in all local municipalities and creating development clusters in all local municipalities.
The district has an abundance of natural resources making it conducive as an agro processing zone thereby providing the much needed jobs, reducing poverty and inequality. However, the contribution of the agricultural sector to the GDP of the district is minimal and does not translate to meaningful development in the district. It is also evident that the growing need for food, nationally and globally, creates a market for the CHDM to export its agricultural products.
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5.4 Recommendations
This section aims to provide recommendations for the promotion of LED in the Chris Hani district.
5.4.1 Improving local economic development strategies for the rural poor
The most important recommendation is that the Chris Hani district must use the LED strategy to address local constraints. This is due to the fact that the rural municipalities in this district are not able to promote LED on their own. They will need the help of LED practitioners to formulate their plans of action. The partnership concept can help local communities to cope with problems specific to their area (Dyubhele 2011:158).
Public–private sector partnerships offer a mechanism to enable each partner to share its own specific competencies and capacities to achieve common and complementary goals more effectively. In addition, this partnership can provide access to more resources from technical knowhow, human resources, social capital, as well as financial resources. Finally, it offers possibilities for greater sustainable economic development (Marais 2008:2; Rogerson 2009:3).
The direct involvement of ordinary people or communities in the planning and governance of overall development programmes at local level is part of democratic practice. It is part of legitimate governance. Although the Municipal Systems Act no.32 of 2000 in Chapter 4 states that due regard is given to public views, nowadays, most community participation in South Africa is spectator politics, where ordinary people have mostly become endorsees of pre-designed planning programmes. Governance is often manufactured through the skillful manipulation of think tanks and ward representative on behalf of the constituents (Dyubhele 2011:158-159; Williams 2006:198).
Due to lack of coherence and coordination of these spheres of government to ensure that work together as the constitution provided no clear accountability or alignment of policy implementation procedures the (Intergovernmental Relations Act of 2000) (IGR) was put into place to assist with integration, alignment and coordination of programmes. The study offers suggestive evidence for a review of the legislation to ensure that there is clarity on the LED mandate and clear roles and responsibility for the three spheres of government.
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5.4.2 The provision of funding LED
The National Treasury must make a provision for the funding of LED through the annual Division of Revenue Act. This will ensure that the funding of LED is not left at the discretion of political leadership or left to compete with other basic services that are needed by communities like water, sanitation, electricity etc.
5.4.3 Improving the IDP of the Chris Hani District
The Chris Hani District (2015:112,) integrated development plan indicates that the achievement of sustained growth and development and the creation of a competitive advantage for the district rely absolutely on the prioritization of interventions which will have the greatest impact both socially and economically. The Provincial Department of Rural Development and Agrarian Reform Integrated Agriculture Strategy 2014 as well as all the District economic strategies prioritise the following sectors for investment:
Agro-processing; Livestock farming (goats and cattle); High value crop production (hydroponics and bio-fuels) Irrigation schemes. Agricultural development does not take place in a vacuum but in an environment where there are focused intentions and broader objectives for rural development and this includes housing, roads, health facilities, education and rural industrialisation. The Chris Hani development agenda (see figure 4.16) is in agreement with this as the district agenda identifies other enablers such as: - Local beneficiation as the cornerstone of the agenda - Water infrastructure backlogs to be reduced - Energy security needs to be addressed - Transport linkages need to be maximized
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5.4.4 Livelihood and locality development
A livelihood is made up of capabilities, assets and activities that are necessary to sustain a certain standard of living. Agricultural intensification is a strategy within the sustainable livelihood framework. The agricultural sector is the sector with the potential to contribute to job creation, promoting of livelihoods opportunities and contributing to sustained economic growth and development.
The basic and economic infrastructure must be prioritized by the district and its local municipalities as an enabler to the prioritized agricultural sector. In locality development, LED concentrates on making the local space an attractive space for business to operate, grow and even locate to. Planning is the key instrument for locality development. One important role that the government can play to improve the business environment is to reform and streamline the regulatory regime for business activity in a certain area (Hindson and Vicente, 2005).
5.4.5 Enterprise development
Enterprise development refers to those actions which help strengthen the economic base and competitiveness of a locality through improving the access of individual and group enterprises to market opportunities and enhance the collective efficiency of groups of connected business. It includes initiatives such as promotion of linkages between local business, emerging entrepreneurs and start-up companies and potential investors from outside, the use of public procurement policies, strengthening of economic clusters and value chains, financial support and non- financial business development services (BDS). (Hindson and Vicente, 2005).
A comprehensive study is explored on how to place entrepreneurship at the centre of the development of the agricultural sector in the district through-out the agricultural value chain including the requisite entrepreneurial support systems. The main tools for LED support from the 1980s to the mid-1990s included provision of business incubators, start-up support and technical support for small and medium sized business (World Bank, 2003). In the later years, this included business attraction, expansion and retention.
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The industrial policy framework in South Africa places a great emphasis on the role of Small, Medium and Micro Enterprises (SMMEs) in order to meet its objectives such as employment creation, empowerment of disadvantaged groups and increasing productivity at the expense of big/large businesses.
Local economic development specifically aims to stimulate the local economy to grow, compete and create more jobs, in particular making better use of locally available resources (Trag, 2004). Successful local economic development has to be built upon local knowledge, skills and resource (Binns and Nel, 1999). Therefore a further analysis of the agricultural produce in the district is done in terms of quality and quantity to ensure that the focus on agro processing is on produce that can meet the economies of scale. South Africa’s range of environments and climatic conditions means that there is a wide variety of agricultural products. While maize is the largest locally produced crop, approximately 80% of SAs arable land is suitable for livestock farming and this contributes almost half of total agricultural output.
5.5 Further research of this topic
A follow up study can be done that will focus on the effect of skills development in the Chris Hani District.
5.6 Limitations of this research
This research is focused on the eight local municipalities in the Chris Hani District and it should be stressed that this study is restricted by the decision of the Demarcation Board of 2015 wherein a decision was taken to incorporate the two local municipalities namely; Inkwanca and Tsolwana to Lukhanji municipality reducing the eight local municipalities from eight to six. The new municipality that incorporates Lukhanji, Inkwanca and Tsolwana is now named Enoch Mgijima Local Municipality. However, the findings of my study are not affected by this change as the data remains the same and the change affects the geographical boundaries of the district.
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ANNEXURES
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