Stimulating the Development of Small Enterprises in Mining Dependent Regions

Stimulating the development of small enterprises in mining dependent regions Wilfred Wentzel, Director, Centre for Integrated Rural Development, South Africa 1. Introduction This brief essay sets out to integrate local developmental issues and challenges with more global and national matters of concern. It will adopt a subnational, municipality level case study approach but will remain mindful of thematic, policy, programme design and operational matters with broad appeal and significance. The case study material will be used to ground the analysis in practical, programme design and development management considerations. In turn, these developmental issues reverberate with thematic and policy interfaces covering a very different and much wider institutional constellation. Public sector institutional decentralization and local economic development will be the twin substantive topics of this paper. The Mbashe municipality in the eastern region of the Eastern Cape will serve as the local, resident host of the case study. The Eastern Cape is the poorest province in South Africa1.. It is also South Africa’s second largest province. The Mbashe municipality is comprised of the magisterial districts of Idutywa, Willowvale and Elliotdale. Geography and poverty seem to conjoin fatalistically and ineluctably in Mbashe since it hosts the poorest (Elliotdale) and second poorest (Willowvale) magisterial districts in the country2.. Idutywa, by comparision, ranks eighteenth in the Eastern Cape magisterial district poverty league (out of its 78 magisterial districts)3.. Local economic development and poverty reduction will be key figures in the script that unfolds. A declining, labour shedding, gold-mining industry that drew its “unskilled” labour force from a politically, militarily and administratively regulated and controlled labour reserve, in South Africa’s former Bantustan areas, including Mbashe in the former Transkei, provides the mining context. The other side of this economic coin is the structural, socio-spatial impoverishment inflicted on rural, resident communities which provided an extremely cheap migrant labour force for the mines. This “black gold” of the infant gold-mining sector in the Witwatersrand of over a century ago was a crucial area of “cost minimisation” in a mining sector with a poorly endowed natural resource base. The Chamber of Mines acknowledged that4. : The grade of ore worked on the Witwatersrand is much lower than is considered profitable in other parts of the world. For example, in Western Australia, the average grade of ore worked is 12.91 dwts. per ton; and in the Hollinger Mine in Canader, the grade ore is 10.28 dwts. per ton. The average on the Witwatersrand is 6.537 dwts. And, the Chamber’s oft repeated refrain that5. : 1 It was not so much the richness of these fields that attracted the necessary capital as it was their apparent continuity and the fact that they could be worked efficiently by cheap native labour ……… There is no factor in the industrial fabric of the mines of greater importance than the native labour supply. “Cheap native labour” was not volunteered easily or readily. Nor could the invisible hand of the capitalist commodity market be entrusted to resolve the labour supply and labour retention problems which accompanied the development of these mines. Numerous “push” and “control” instruments of a quite brutal kind were designed to sort out these labour market problems. Remember, the desertion rate of black mine- workers in 1910 amounted to 30, 000 out of a total black labour complement of 180, 000, a rate of about 16 per cent.6. The scars of these earlier, historically crafted socio-political, administrative, military and economic interventions to ensure a ready, tightly controlled and cheap labour supply to the mines, factories and commercial farms remain indelibly imprinted on Mbashe’s lanscape. The case study material in section three will add flesh to this broad observation. The architecture of this paper is comprised of the following components: § An overview of the South African economy to sketch the developmental landscape within which the case study is located. This summary overview will focus on the enterprise types and labour absorption capacity of the economy. § A socio-economic profile of the Mbashe municipality to provide a contextual setting for the discussion of local economic development. § Case study material of local economic development interventions – constraints and challenges. § Reflective comments to round off the discussion. Impoverishment and strategies and programmes which enhance or reduce levels of poverty will be constant themes throughout the paper. 2. The South African Economy : A summary diagnostic overview. The South African economy is characterised by an extreme dualism. This dualism is compounded by a strong socio-spatial dimension which remains one of the most pernicious, enduring and corrosive legacies of the Apartheid and colonial eras. 7. Mbashe’s socio-economic profile, discussed in section three, displays characteristics ever so typical of the black rural side of this coin. The two sides of this dualistic coin are vastly different: A modern first world system with good physical, social and communications infrastructure conjoined, inextricably, with a typical third world type, resource poor economic sector. The large – scale, capital-intensive enterprise model remains the dominant and most prevalent business form in both the agricultural and non-agricultural modern economic sectors. The table 2 below furnishes a summary overview of the distribution of enterprise types by scale in the South African economy. 8.Table 1: SMMEs: Distribution Profile Scale: No of Enterprise Type No. of such No. of % employees Enterprises % Employees 1. Survivalist (1) 184, 400 20% 184, 400 3% 2. Micro – enterprise (2-4) 466, 100 51% 848, 549 11% 3. Very small (5-10) 180, 100 20% 1, 068, 431 14% 4. Small (11-20) 58, 851 7% 1, 225, 972 17% 5. Medium (21-100) 11, 322 1.3% 909, 880 12% 6. Sub Total 900, 673 99% 4, 237, 232 57% 7. Large (101 +) 6, 017 0.7% 3, 159, 931 43% Total 906, 690 7, 397, 163 The following structural features of the profile are noteworthy : · Large-scale enterprises account for 0.7% of the total number but 43% of the jobs. · Medium-scale enterprises account for 1.3% of the total number but 12% of the jobs. · Survivalist businesses account for 20% of the total number but 3% of the jobs. · Micro businesses account for 52% of the total number but 11% of the jobs. Levy cautioned that the picture may be worse and that the South African data are misleading since it conceals ownership and control patterns: Four giant business conglomerates have controlling interests in a large number of firms engaged in a variety of businesses unrelated to their core activities. In addition, Levy’s9. analysis of “high fliers” within the small, medium enterprise sector yielded the following sobering insights, inter alia: “insofar as South Africa’s SMMEs are skewed toward older firms, and insofar as the older firms tend to be larger, the recent underperformance of older firms complicated the challenge of employment creation”. And: “The share of manufacturing employment in establishments of 100 or more workers was higher in South Africa, than in Korea, Singapore ….. Malaysia, or the average for a group of nine countries with per capita incomes in the US $ 2000 - $ 5000 range”. The significance of the scale imbalances evident in the South African economy is cause for severe discomfort: Accumulated job losses from the third quarter of 1989 to the end of the first quarter of 1999 totalled nearly 850, 000 and “reduced the number 3 of gainfully employed to a level last seen in 1979. 10. The mining sector contributed its fair share to this trend, shedding 254, 856 jobs over the period 1991 – 1998.11. The re-entry of South Africa into the global market place within a less protected and subsidised national economic framework has been a far from painless process. The old style, national, modern business sector has proved itself far from competitive economically and is wilting in the face of new economic and social challenges. Nationally, labour retention and absorption capacities have declined dramatically at a time when transformation, poverty reduction, equitable economic growth are top priority policy and social issues. The survivalist and micro links in the economic chain provide much needed coping instruments to impoverished urban and rural households. These instruments are crafted, more often than not, from a severly constrained menu of opportunities and range of options. It is not unusual for the actors in these segments to be badly exploited, labour sub-contractors for large-scale enterprises as in the construction, clothing, manufacturing, fresh fruit or retail sectors. They are poor dogs in a wealth creating chain where wealth and comfort “trickle-up” with fatalistic disdain for those small actors in the front line or at the coalface. This kind of uni-directional flow of economic benefit streams does have adverse macro-economic consequences viz., low levels of reinvestment in the human and institutional capital of these small-scale economic actors, sacrificing quality for quantitatively tight production cycles, no breathing space for creativity and innovation. The small-scale business sector often falls victim to similar business hazards afflicting their survivalist and micro colleagues. The small to medium scale business sector should be a robust, dynamic, flexible and innovative economic live wire of economic growth, job creation and business development. This is of strategic importance in an ailing economy like South Africa’s, where job shedding and jobless growth have become macro-economic trends. Alas, as exemplified by Levy’s findings and analyses, such robustness is conspicuously absent from this segment of the business sector. In quantitative terms, the segment accounts for a mere 8% of the total number of enterprises and an unflattering 29% of jobs. It is evident from the above submissions that structural surgery of a drastic type is warranted to recast the South African economy in a mould befitting the challenges.

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