Accelerating Economic Growth and Development in the Free State

Accelerating economic grow th and development in the Free State: Framework for a responsive 2004 NO 8 partnership approach towards sustainable economic development in the Free State Accelerating economic growth and development in the Free State: Framework for a responsive partnership approach towards sustainable economic development in the Free State Centre for Development Support (IB 100) University of the Free State PO Box 339 Bloemfontein 9300 South Africa www.ufs.ac.za/cds Commissioned by the Premier’s Economic Advisory Council, Free State Province, South Africa Please reference as: Centre for Development Support (CDS). 2004. Accelerating economic growth and development in the Free State: Framework for a responsive partnership approach towards sustainable economic development in the Free State. CDS Research Report, LED and SMME Development, 2004(8). Bloemfontein: University of the Free State (UFS). Executive Summary This report addresses one of the key responsibilities of the Premier’s Economic Advisory Council (PEAC) of the Free State, viz. the development of a comprehensive and coherent economic-development strategy, to enable the achievement of the economic objectives of the Free State Development Plan (FSDP). To underpin this report, the PEAC commissioned a number of research reports, the bulk of which will be released at a later stage in an effort to encourage more in-depth discussion of the different issues. With 10,6 per cent of South Africa’s area, 6,4 per cent of the national population and 4,9 per cent of the country’s Gross Domestic Product (GDP) the Free State is relatively large in physical area but small in population size and GDP contribution. The weak position of the Free State economy is reflected by the relatively low (2002) per capita income level (R11 854 compared to R17 164 for South Africa and R32 356 for Gauteng), a high unemployment level of 38,9 per cent (SA 40,8 per cent) and close to 49 per cent of the population “living in poverty”. Historically, the Free State had a solid economic base, which unfortunately has been dented sharply by the decline in the gold-mining industry over the past decade, the rationalisation of the grain industry and the interaction of a number of structural barriers to faster development. Unless these factors are addressed in a concerted, systematic and proactive way, there is a real danger that a “vicious circle of stagnation” will accelerate and the province will drift into deeper conflicts. The PEAC is convinced that a “turn-around” towards a new growth path is possible, as long as all stakeholders and players in the Free State’s economic process co-operate to achieve that goal. 1 Factors limiting economic development Three sets of structural factors seriously limit the Free State’s development momentum, viz. sector-growth weaknesses, spatial-development imbalances and a strained development environment. 2 Just as the rapid growth of the gold-mining industry shaped the region’s economic ascent during the 1960s, ’70s and ’80s, just so its decline is responsible for the regional economy’s stagnation since the early 1990s, with the employment share of gold-mining falling from 19,4 to 8,0 per cent over less than a decade. As there are no gold resources at comparable or lower costs in the Goldfields area, this decline will continue, with an escalation after 2010. Unfortunately, other minerals (including diamonds and coal) are unable to compensate for that decline. In the agricultural sector a number of forces have interacted to reduce employment and the value-added of conventional farming in the Free State. This has augmented the dampening impact which the declining gold industry has had on other sectors of the regional economy, leading to an overall –0,1 per cent real GDP growth per annum over the past 12 years. The lack of any new, distinct growth sector has led to the widespread perception that economic stagnation in the Free State is “chronic”. Geographically the Free State’s internal industrial- and services-sector development has suffered from the region’s proximity to Gauteng’s economic centre and the drastic decline in the province’s platteland towns and villages, leaving only Bloemfontein and Sasolburg as relatively dynamic larger centres. On socio-economic and socio-political levels a relatively sharp polarisation between racial and private-public leadership has further hampered steady growth and dynamic development efforts, with institutional weaknesses and a particularly high level of HIV/AIDS infection constituting additional development impediments. The absence of a clearly articulated future vision of the Free State’s economic growth path and its competitive advantages accentuate all these factors. 2 A new approach to the Free State’s economic growth and development The PEAC is convinced that the Free State’s disappointing economic situation is neither unique nor irreparable. Future growth momentum will depend on the mobilisation of a new range of growth niches and the reactivation of a number of platteland places. Rather than waiting for the emergence of a unique new “dominant” sector (like gold-mining) or for the Goldfields area to re-ignite, future growth may have 3 to rely on several, relatively modest endogenous growth stimuli which interact to raise overall growth performance. Such a turnaround cannot be achieved by the private sector or through local efforts alone. Endogenous development initiatives have to be complemented by systematic, co-ordinated and sustained public-sector efforts, incorporating both the provincial government (and provincial parastatals) and national authorities. The crux will be bottom-up entrepreneurial initiatives “matched” and supported by co-ordinated local, regional and provincial efforts, facilitated by national and sector-focused interventions. The strategy document outlines relevant areas for local initiatives and public support, evolving as public-private partnerships. 3 Opportunities for sector growth and transformation The PEAC sees significant growth and development opportunities in three sectors of the Free State economy, viz. agriculture, manufacturing and tourism, with a range of other sectors (trade, transport and communications, construction, financial and business services as well as educational and health services) each offering significant, though “non-spectacular” growth opportunities. Even the steady decline of the mining sector still leaves opportunities for the re-utilisation of redundant mine infrastructure facilities. Closer co-operation between mining corporations, local small(er) enterprises and public-sector players in the Free State could help cushion the process of mine redundancies. In agriculture much will depend on proactive efforts to further diversify the product range and to skilfully combine commercial and evolving subsistence farming. Also significant are efforts to increase value-adding in the agricultural and agri-processing value chain. In manufacturing the success of Sasolburg’s petro-chemical complex cannot be the only base for a provincial secondary industry. Focused efforts are needed to maintain, if not expand, industrial activities in the Bloemfontein-Botshabelo area and around the former Qwaqwa growth point, with the Goldfields offering more limited opportunities for new processes. 4 Tourism may constitute the most significant “new” growth sector, with the potential including both the Free State-Lesotho mountain range and a number of more decentralised attractions, spurred by the Free State’s location within a 350-km road- distance radius of Gauteng’s urban agglomerations. There are clear indications that the sector is taking off, even though the short-run job-creation impact should not be overrated. In each of the smaller sectors mentioned earlier there are distinct growth opportunities, linked to an already existing sector base. Although the proximity to the Gauteng industrial and services hub dampens new developments in the Free State in most of these sectors, concerted public-private partnership initiatives should show modest success. In several of these Lesotho’s consumer, investor and other demands should be viewed as important potential stimuli. 4 Spatial development opportunities With a low overall population density, economic activities in the Free State are largely concentrated around three urban clusters (Mangaung, the Goldfields area and Sasolburg) and two development corridors, viz. Bloemfontein-Maseru and Qwaqwa- Ficksburg. Beyond these, only a few tourism spots and a range of small towns and transport routes determine the spatial pattern of development. Compared to other provincial centres like Johannesburg, Pretoria, Durban and Cape Town, Bloemfontein (population 400 000) is relatively small and has only a limited metropolitan growth potential. Sluggish regional growth and the decline of gold-mining have further limited that momentum. Yet, in the absence of significant secondary towns in the province, Bloemfontein has to cater for the consumer and general household needs of about 2,5 million Free State residents and about 1,5 million Lesotho residents. This should result in steady growth of trade, financial, business and professional services as well as further and higher education. It should also attract some larger corporates if linked to proactive investor marketing. The Goldfields urban area faces the Free State’s greatest challenge – to transform a modern urban complex in a way that it becomes less dependent on its dominant 5 economic base. Even modest

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