LOCAL ECONOMIC DEVELOPMENT THROUGH SMALL BUSINESSES IN DIMBAZA By Sixolile Gantsho (212235222) Submitted in fulfilment of the requirements for the Master of Arts degree (MA): Economics Research In the Faculty of Business and Economic Sciences Of the Nelson Mandela University August 2019 Supervisor: Professor Ronney Ncwadi ABSTRACT This study was conducted in Dimbaza, a small town outside of King Williams Town. Dimbaza was created as a resettlement township during Apartheid in 1967. The study investigated local economic development through small businesses. The study described the state of the small business sector, it presented the contribution this sector has towards employment creation and income generation. Furthermore, it investigated the challenges that the small business sector in Dimbaza faces and the level of responsiveness from the local authorities in Buffalo City Metropolitan Municipality which Dimbaza falls under. The study was conducted using a survey questionnaire which was administered to small business entrepreneurs. Furthermore, a focus group with small business owners and semi-structured interviews were conducted with officials from the Buffalo City Metropolitan Municipality in the Business Development and Local Economic Development Directorate. The findings of the study suggest that Dimbaza has a large informal economy which has of survivalist entrepreneurs with small and micro businesses. It is evident from the study that the small business sector in Dimbaza is facing the following challenges: 1) No access to funding opportunities, 2) a lack of infrastructure, 3) lack of proper running water and electricity and 4) lack of economic development programmes from the municipality. There is a dire need for the intervention of local authorities in the small business sector in Dimbaza. Buffalo City Municipality needs to ensure the creation and implementation of programmes through Local Economic Development. 1 Table of Contents General Introduction to The Study ............................................................................ 10 1.1 Introduction and background .............................................................................................. 10 1.2 Problem Statement .............................................................................................................. 11 1.3 Objectives ........................................................................................................................... 12 1.4 Research Questions ............................................................................................................. 12 1.5 Research methods ............................................................................................................... 13 1.5.1 Sampling procedures .................................................................................................... 13 1.5.2 Sampling Design .......................................................................................................... 13 1.5.3 Data collection technique ............................................................................................. 13 1.5.4 Reliability of the research instrument .......................................................................... 15 1.5.5 Data analysis ................................................................................................................ 16 1.6 Significance of the study ..................................................................................................... 16 1.7 A Brief Literature Review .................................................................................................. 16 1.7.1 The Lewis Theory of development .............................................................................. 17 1.7.2 The Neo-colonial Dependence Model ......................................................................... 17 1.7.3 Local Economic Development: International Context ................................................ 18 1.7.4 Local Economic Development: South African context ............................................... 18 1.7.5 National Framework for Local Economic Development ............................................. 19 1.8 Delimitation of the research ................................................................................................ 19 1.9 Ethical Considerations ........................................................................................................ 19 1.10 The organisation of the study ............................................................................................ 20 Literature Review on Economic Development Theories and Review of Legal and 2 Policy Frameworks ....................................................................................................................... 21 2.1 Introduction ......................................................................................................................... 21 2.2 Economic Development theories ........................................................................................ 21 2.2.1 The Lewis Theory of development .............................................................................. 21 2.2.2 The Neo-colonial Dependence Model ......................................................................... 22 2.2.3 The Dualistic- Development Thesis ............................................................................. 23 2.3 Local Economic Development theories .............................................................................. 24 2.4 Understanding Local Economic Development (LED) ........................................................ 25 2.5 Legal and Legislative Framework: National ....................................................................... 26 2.5.1 The Constitution of the Republic of South Africa (Act 108 of 1996) ......................... 27 2.5.2 The Local Government Transition Act 1993 as amended in 1996 .............................. 28 2.5.3 The White Paper on Local Government, 9 March 1998 .............................................. 28 2.5.1 The Municipal Systems Act, 2000 (Act No 32 of 2000) ............................................. 28 2.6 National Programmes .......................................................................................................... 29 2.6.1 The Reconstruction and Development Programme (RDP) .......................................... 29 2.6.2 The Growth, Employment and Redistribution Strategy of 1996 (GEAR) ................... 29 2.6.3 The Accelerated Shared Growth Initiative in South Africa (ASGI-SA) of 2004 ........ 30 2.6.4 The National Framework for Local Economic Development in South Africa (2006- 2011) ..................................................................................................................................... 30 2.6.5 National Development Plan (NDP), Vision 2030 ........................................................ 32 2.7 Policy Frameworks: Local .................................................................................................. 32 2.7.1 Eastern Cape Vision 2030 Provincial Development Plan ............................................ 32 2.7.2 Buffalo City Metro Municipality Growth and Development Strategy Vision 2030 .... 33 2.7.3 Buffalo City Metro Municipality Integrated Development Plan: 2016-2021 .............. 34 2.8 Local Economic Development approaches ......................................................................... 34 3 2.9 Local Economic Development: International Context ....................................................... 35 2.10 Local Economic Development: South African context .................................................... 37 2.11 Conclusion ........................................................................................................................ 38 Small Firms: Formal and Informal ............................................................................ 39 3.1 Introduction ......................................................................................................................... 39 3.2 Small businesses in South Africa ........................................................................................ 39 3.3 Entrepreneurship ................................................................................................................. 41 3.4 Defining Small, Medium and Micro Enterprises (SMMEs) ............................................... 42 3.5 Small businesses and economic development .................................................................... 44 3.6 The importance of SMMEs ................................................................................................. 45 3.7 The Performance of SMMEs .............................................................................................. 47 3.8 Informal business sector ..................................................................................................... 48 3.8.1 Informal business sector defined ................................................................................. 50 3.9 Challenges faced by small businesses in South Africa ....................................................... 52 3.10 Conclusion ........................................................................................................................ 54 Research Design and Methodology ........................................................................... 55 4.1 Introduction ........................................................................................................................