CDE IN DEPTH ISSUE 2 / JULY 2005 Growth and development ISSUE 2 inJULY 2005South Africa’s heartland Silence, exit, and voice in the Free State CDE IN DEPTH NO 2 GROWTH AND DEVELOPMENT IN SOUTH AFRICA’S HEARTLAND: Silence, exit, and voice in the Free State Main report July 2005 THE CENTRE FOR DEVELOPMENT AND ENTERPRISE CDE IN DEPTH provides South African decision-makers with detailed analyses, based on original research, of key national policy issues. SERIES EDITOR Ann Bernstein This report has been written and edited by Dr Jeff McCarthy, Dr Sandy Johnston, and Ann Bernstein. The following research papers and reports were commissioned for this study: Free State baseline study (J J McCarthy and P Robinson) Case Study: Business, government, and development in Bloemfontein (J J McCarthy) Case Study: Business, government, and development in Welkom ( J J McCarthy) The international literature on growth coalitions (E Nel, L Marais and M Gibb) Coping with the life cycle of extractive industries (M Limpitlaw and M Hoadley) Staff of the University of the Free State’s Centre for Development Support conducted most of the interviews reflected in this report. This study has been funded by the Open Society Foundation for South Africa. Published in July 2005 by The Centre for Development and Enterprise Pilrig Place, 5 Eton Road, Parktown, Johannesburg, South Africa P O Box 1936, Johannesburg 2000, South Africa Tel 27-11-482-5140 ▪ Fax 27-11-482-5089 [email protected] www.cde.org.za © The Centre for Development and Enterprise. The material in this publication may not be copied, stored, or transmitted without the prior permission of the publishers. Short extracts may be quoted, provided the source is fully acknowledged. CONTENTS INTRODUCTION 5 PART 1: THE FREE STATE 9 Key indicators 11 PART 2: A TALE OF TWO CITIES 23 Bloemfontein 27 Welkom 42 Summary of key findings 58 PART 3: LESSONS FROM INTERNATIONAL EXPERIENCE 61 Growth coalitions 63 Coping with the life cycle of extractive industries 75 PART 4: KEY POLICY ISSUES AND PROPOSALS 87 Key policy issues 90 Policy proposals 93 Summary of policy proposals 97 Concluding remarks 98 Endnotes 101 INTRODUCTION Located midway on the axis between Gauteng and Cape Town, which is traversed daily by national political and business leaders, Free State is ‘halfway to everywhere’. For much of the 20th century – under very different political and economic conditions – the Free State could claim to be the national ‘heartland’. This status had now faded and, as they fly over the province, national elites lack the visual reminders of it, which their predecessors enjoyed as they travelled through it by rail or road. Like Ohio, Iowa, or the other ‘flyover’ states of the United States, the Free State cannot continue to rely on traditional rural values in order to lay claim to national support or attention. Rather (as in Iowa or Ohio), its future now hinges on advantages in knowl- edge industry leadership, astute regional marketing, and whatever political leverage can be mustered in ruling party dynamics. This report is about how places that used to be nationally important can easily lose this status, and about how being ‘halfway to everywhere’ is no help at all if most influential people are leaving, fewer are passing through, and fewer still are coming to stay. The report is also, in a wider national context, about the ‘missing links’ in development strategy in South Africa, namely genuine trust between the public and private sectors, and a collaborative mind-set. Private sector leaders have recently hailed South Africa’s metropolitan-based economic growth rate in the last two quarters of 2004, and have predicted that this could be sus- tained and increased.1 If such prognoses need to be qualified, it is that growth will de- pend upon ‘confidence’, and that this is a fragile commodity. As Brian Bruce, chief executive officer of the construction company Murray & Roberts puts it:2 ‘But do government and business trust each other, I wonder? That must be the most important precondition for sustainable growth and development.’ Certainly the chart of mutual trust between business and government has been volatile in recent years. This was illustrated again in September 2004 when President Thabo Mbeki publicly upbraided Tony Trahar, chief executive officer of Anglo American plc, for stating that political risk was still a factor that businesses had to consider in their South African operations. There could scarcely be a better example of apprehension and misapprehension around questions of mutual trust.3 This study suggests that these apprehensions and misapprehensions are not confined to high-level exchanges between heads of state and global corporations. Its key finding is that there is also a failure at the grass-roots level to develop a common, unambiguous, and pragmatic agenda or language of development. As we will demonstrate, this is the most obvious ‘missing link’ in the Free State’s development prospects. GROWTH AND DEVELOPMENT IN THE FREE STATE Background This report is based on research conducted in two Free State cities, Welkom and Blo- emfontein. The main purpose of the study was to find out what key stakeholders in those places thought about the challenges faced by their cities, and how they were fac- ing up to them. The choice of subject and location arose from discussions between CDE and the project’s funder, the Open Society Foundation for South Africa (OSFSA). CDE shared OSFSA’s concern about the geographically uneven distribution of devel- opmental research in post-apartheid South Africa. To some extent this bias is inevitable because the central dynamics of economic growth and change undeniably occur in South Africa's major metropolitan areas, and the worst effects of poverty are found in the rural areas. However, the provincial cities and small to medium towns, sandwiched as they are between the rural areas and the metropoles, are in a particularly difficult position. They are expected to play an important part in local government and decentralised economic growth plans while facing their own formidable versions of economic, political, and social adjustment to new conditions and new challenges of transformation and global- isation. Despite this, they tend to be underrepresented, and even neglected, in policy research. The Free State is arguably one of the most neglected areas in these respects, leading to a notable deficiency in our understanding of contemporary South Africa. Underlining this, the Human Sciences Research Council (HSRC) recently closed its office in the Free State. The dominant influences in the province's economy are the primary or extractive in- dustries – agriculture and mining – that have historically played a major role in the na- tional economy, but now account for shrinking percentages of GDP and employment. It has a settlement mixture of towns, rural areas, and a provincial capital that is home to important public and private sector elites. These things cannot make the Free State completely 'typical' of South Africa, since no one place can be typical of such a diverse country. However, this economic profile of gold and maize and this pattern of settlement have historically given Free State a ‘heartland’ or ‘middle South Africa’ quality. This may have made it worthy of national attention in the past but, as we have already observed, this is a dwindling asset today. Concerns about the information deficit in ‘middle South Africa’ played their part in the initial OSFSA and CDE conceptions of the project, but it was also shaped by some preoccupations that have been central to much of CDE’s work. CDE is convinced of the centrality of South Africa’s urban agglomerations of all sizes to the prospects of economic growth.4 As we put it in an earlier publication: Any national growth strategy must have the role of cities as a top priority. To neglect cities is to jeopardize national development…. About 80 per cent of GDP is already THE CENTRE FOR DEVELOPMENT AND ENTERPRISE 6 GROWTH AND DEVELOPMENT IN THE FREE STATE produced in our cities and towns, making their role and performance central to na- tional development.5 While this study is rooted in the conviction that our towns and cities are crucial sites of governance and commercial leadership, it has been shaped by three other assumptions: • We agree with Michael Porter when he wrote: ‘Each location – whether it be a nation, a region or a city – has a set of unique local conditions that underpin the ability of companies based there to compete in a particular field.’6 • We believe that public–private partnerships of interests and capacities – that is, growth coalitions (GCs) – are necessary for the vision, leadership, and lobbying that will convert these local conditions into opportunity and successful entrepre- neurship • We understand that any given situation, whether of growth, stagnation or decline, is a mixture of the unique and the familiar; thus it is important to look for elements of international best practice, and examine them closely for applicability at home. With these things in mind, CDE commissioned the following studies:7 • A baseline study of the demography and economy of the Free State. • Two case studies of developmental challenges in the urban areas of Bloemfontein and Welkom, focusing in particular on stakeholder interviews in order to reveal perceptions of decline and prospects of regeneration. • A review of growth coalitions in global theory and practice. • A review of initiatives to promote economic development in areas suffering from a decline in ‘mature’ industries such as mining and heavy manufacturing Structure of the report Edited (and sometimes qualified) versions of these commissioned studies comprise sections of this report, and provide some bases for CDE’s analysis and recommenda- tions, which link and conclude the report as a whole.