OFFICE OF THE GENERAL MANAGER

LOCAL ECONOMIC DEVELOPMENT

Strategic Framework

By:

Kgomotso Mohlala,

General Manager: Local Economic Development

10th May 2002

1Executive Summary.

The City of CTMM Metropolitan Municipality (CTMM) is only 18 months old. However, it inherited a 150 year old legacy of social and economic decimation.

The new South African Constitution and a number of Acts and National and Provincial Policies not only mandates the CTMM to seek out the correctives to this legacy, they clearly put the responsibility for socio-economic development at the Local Government level.

This document lays out a strategic framework for the economic development of CTMM.

This framework document introduces the topic by documenting the policy environment in which the council must operate. There are a number of Acts and policy documents that provide a national framework. In addition, the Provincial Government provides support to the process via its programmes and agencies.

The document outlines the current situation and positions CTMM contextually in global, national, provincial terms.

There are many threats and challenges faced by the CTMM in its search for social and economic equity for its constituents and in realising vision of becoming an “An internationally acclaimed African capital city that empowers the community to prosper in a safe and healthy environment.” A number of the major challenges are documented.

The objectives of the LED are detailed and from these, a goal structure developed.

Chapter 6 is the critical chapter of this document; it outlines the strategic framework that the LED needs to adopt in order for the CTMM to achieve its objectives.

From the 9 goal areas documented, sets of strategic tasks for each goal area were developed. It is these tasks that will form the basic framework of the LED’s future strategy for economic development.

2Introduction.

The City of Tshwane Metropolitan Municipality (CTMM) inherited a structure (institutionally and economically), which was totally geared to suppressing the majority of its citizens. In the past, the economy was totally geared to servicing the white dominated formal sector with the total exclusion of the marginalized sector of the population.

The legacy of the past 150 years has resulted in a highly decimated and stagnant socio-economic environment within which the majority of the population lives and has resulted in a high degree of poverty, social disruption and a formal economy that is shrinking.

Given the high level of poverty being suffered in CTMM , there is a need to develop a pro-poor strategy that focuses primarily on meeting basic needs of the community. However, this will not be at the exclusion of continuing to develop the formal sector economy. It is important to understand that CTMM has two economies and that strategies to stimulate both are equally important.

The Local Economic Development (LED) has organised a programme to cater for development of both sectors of the CTMM socio-economic environment. It has developed a set of goals and objectives, which form the basis for this strategic framework.

The problems created by our past are unique and the tasks faced by the CTMM are enormous. However, during the past seven years many people and organisations have debated and searched for the corrective actions needed.

This document will set out the policy framework within which the CTMM LED must operate, document the current socio-economic environment, list the major challenges and opportunities, and then provide a strategic framework for the economic development.

The strategic framework is only the starting point of a planning process that will progress to a comprehensive economic strategy, which in turn will be developed into a set of policies, programmes aimed at correcting the socio-economic imbalances.

3Policy Framework.

3.1National Framework

At the national level, it is the Department of Trade and Industry (DTI), which plays the key role in the economic development of the country. The department is currently undergoing a restructuring process. All industry sector-based officials in the department will be relocated within Trade and Investment South Africa ( TISA.)

The DTI has identified 6 key focus areas around which they will be developing their policies and programmes:

  • Black Economic Empowerment,
  • Exports,
  • Investment,
  • Geographic spread,
  • SME development, and
  • Women outreach.

The economic development strategies of the new CTMM must in the first instance be based on the economic development mandate assigned to local governance in South Africa.

The need to create employment and increase incomes is the central objective of the economic policy of the national government. The Reconstruction and Development Program (RDP) remains the basic policy framework to achieve this objective. Within this framework, the following economic development mandate has been set for local government:

3.1.1The Constitution

The Constitution of the Republic of South Africa (Act 108 of 1996, Chapter 7, Section 152 (1) inter alia assigned the objective: ”To promote social and economic development” to the local government sphere of governance.

3.1.2The White Paper on Local Government (1998)

The debate on just what local government should be doing to promote economic development has been on-going and the most comprehensive policy directive handed down from the national level was embodied in the White Paper on Local Government (1998). The section in the White Paper that deals with the issue of local economic development is found on pages 25 and 26 of the published White paper and is quoted here in full:

“2.3 LOCAL ECONOMIC DEVELOPMENT

Local government can play an important role in promoting job creation and boosting the local economy. Investing in the basics - by providing good quality cost-effective services and by making the local area a pleasant place to live and work - is the key starting point. However, two other types of initiative are important:

  • Reviewing existing policies and procedures to promote local economic development.
  • Provision of special economic services.

These approaches are further explained below.

2.3.1Reviewing Existing Policies And Procedures To Enhance Employment And Investment

Small and large businesses rely on the actions of local government in a number of ways. They are also subject to a number of municipal regulations. A review and simplification of municipal procedures and regulations can have a significant impact on the local economy. For example:

Procurement procedures can be revised to maximise the impact of municipal purchasing on job creation and the local economy. In particular, preference can be given to local suppliers and small enterprises, particularly those in the informal sector. Principles such as labour intensity and affirmative action can be introduced. It is essential to ensure that selection criteria and procedures are clear and transparent to avoid abuse. Cost and quality must still be central criteria; however, support can be given to emerging contractors by breaking tenders down into smaller parts, providing targeted information and training, or allowing exemption from large securities.

Rezoning requests and applications for building permits by developers are frequently held up in cumbersome bureaucratic approval processes. In many cases these can be simplified. The establishment of a spatial framework which identifies land for residential, commercial and mixed development can help to speed up rezoning by establishing clear guidelines up-front.

Customer management and billing are often handled by several different municipal departments with offices in different locations. The establishment of user-friendly one-stop shops which can advise residents and deal with single accounts for all municipal services can increase the quality and efficiency of local services.

2.3.2Provision of special economic services

The Constitution states that local government is responsible for promoting the social and economic development of communities. This provides municipalities with a mandate to provide special economic services, or to assist other agencies with the provision of such services, where appropriate.

Marketing and investment support can be provided in order to attract and secure potential investors. It is important that such services are cost-effective. For example, international evidence suggests that financial incentives, which are quite costly, have a very limited impact on investment decisions and should be avoided.

Small business support services can be provided to assist small entrepreneurs. The Department of Trade and Industry has launched a programme to establish local business service centres, and municipalities are encouraged to support this programme where appropriate. Such centres aim to assist with skills, premises, information, networking, marketing and access to credit.

Research and technology are important ingredients for innovation in an increasingly competitive international economy. Municipalities might provide targeted assistance to a particular sector in the economy which has the potential to expand.

Training and placement services can be provided to help people to acquire the skills they need to find work, or to find jobs once they have the skills. The Department of Labour provides such services through its regional offices. Municipalities can play a role in tailoring these services to local circumstances, in order to match supply and demand in a practical way. The relevance of these services will depend on local circumstances. It is important to establish the value of a particular service in the local area before it is initiated. “

(Section 2.3, p25-26)

The section of the White Paper quoted above stops short of being prescriptive and it rather provides a menu of possible LED strategies that local authorities may follow. The broad strategic framework adopted by a local authority will depend on the unique characteristics of its metropolitan area, the size and composition of its local economy and the institutional capacity of the local authority to implement the selected LED strategies. National and Provincial government are also in the process of reviewing their policies and strategies. These will have impact on the current developments undertaken by LED. There is therefore flexibility in the programme development to accommodate changes.

As the provision of special economic services is a new function at the local government level, it will require the setting up of a separate and dedicated economic development unit within the organisational structure.

3.1.3Black Economic Empowerment (BEE)

As a point of departure, the following definition of black economic empowerment that was used in the draft June 1999 Black Economic Empowerment Report of the Black Economic Empowerment Commission ("BEEC") should be adopted-

"Black Economic Empowerment is an integrated and coherent socio-economic process, located within the context of national transformation that is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer ownership, management and control of South Africa's financial and economic resources to the majority of its citizens, with a view to ensure the broader and meaningful participation to achieve sustainable development growth and prosperity."

The National Empowerment Fund Act ("NEF Act") which -

Provides for the establishment of a trust for the promotion and facilitation of ownership of income-generating assets by historically disadvantaged persons.

Seeks to facilitate the redressing of economic inequality, inter alia, by:

  • Providing historically disadvantaged persons with the opportunity to acquire interests in commercial enterprises partly or wholly owned or controlled by the State that are being restructured or in private business enterprises;
  • Encouraging and promoting savings, investments and meaningful economic participation by historically disadvantaged persons; and
  • Promoting and supporting business ventures pioneered and run by historically disadvantaged persons;

The Employment Equity Act which, inter alia, requires certain employers to implement affirmative action measures designed to ensure that suitably qualified persons from previously disadvantaged groups (including women and people with disabilities) have equal employment opportunities and are equitably represented in the workforce of certain employers. Designated employers are required to prepare and implement an employment equity plan designed to achieve reasonable progress towards such employment equity;

The Skills Development Act, which seeks to provide an institutional framework to, inter alia:

  • Develop and improve the skills of the South African workforce;
  • Improve the employment prospects of persons previously disadvantaged by unfair discrimination; and
  • Redress those disadvantages through training and education;

The Skills Development Levy Act which provides for the imposition of a skills development levy on employers; and

The Preferential Procurement Policy Framework Act ("Procurement Act"),

The Department of Trade & Industry has also established specific funding programmes aimed at assisting emerging enterprises and black economic empowerment ventures. These programmes, which are managed by the IDC, include:

  • Entrepreneurial Finance & Economic Empowerment Scheme – available, among others, to groups from historically disadvantaged communities that intend to start up or acquire manufacturing businesses
  • Take-over and Acquisition Scheme – finances acquisition of a significant stake in an industrial concern
  • The Consortium Finance - assists empowerment groups to increase their equity base
  • Wholesale Finance Scheme – available for on lending to emerging entrepreneurs
  • Low Interest Rate Empowerment Scheme – to finance new or additional production capacity by black owned/controlled enterprises

Although BEE is a primary focus area at the DTI since 1994, the most recent experience in this area has not been very positive, with certain high-profile initiatives running into difficulties. The Black Economic Empowerment Commission commissioned a study to generate a more thorough understanding of the concept of black economic empowerment and constraints facing BEE initiatives and processes.

The results of the BEEC study will have to be utilised to inform the future strategies and processes of LED Division of the CTMM.

3.2Provincial framework.

3.2.1Gauteng Provincial Department of Trade & Industrial strategy.

The Gauteng Provincial Government is currently restructuring the Trade & Industrial department. It is currently in the process of analysing the economy, re-evaluating its policies, and setting targets. Nevertheless, Gauteng still places its new growth trajectory on three strategic thrusts:

  • The realignment of manufacturing away from heavy industry and low value added production toward sophisticated, higher value added production.
  • The development of the province as a smart centre of the country with specific emphasis on information technology, telecommunications equipment, research and development, and biomedical industries.
  • The development of the finance and business service sector with specific emphasis on financial services and technology, auxiliary business services and technology, corporate head office location and business tourism.

3.2.2Gauteng Provincial Government support for Small, Medium & Micro Enterprises.

The Gauteng province has as its main focus the development of SMEs through a number of programmes.

It does not have any programmes for Micro Enterprises or the informal sector. This is left to the local government structures to undertake.

Gauteng Province has established a number of economic clusters, which are represented either by departmental divisions, programmes or agencies. These are:

  • Economic Policy and Research. It is this division, which is responsible for setting policy, targets, and undertaking monitoring and evaluation.
  • Consumer Affairs,
  • Blue IQ,
  • GTA,
  • GEDA,
  • The Gambling Board, and
  • Gaumac.

The National Department of Trade and Industry’ TISA has provincial representatives who represent the department at provincial level.

3.3Local framework

3.3.1Integrated Development Programme

The IDP is currently being compiled by the CTMM. The LED will play a key role in drafting the IDP. This document will take cognisance of both the economic realities and the economic developmental needs of CTMM.

The IDP will focus on strategies that will set the CTMM on a rapid economic growth curve. Particular attention will be given to addressing the economic imbalances of the past.

4Current situation

4.1Global context

In the globalised world economy, the competition is not between countries anymore; cities are now competing with each other for market share and investment. Both New York and CTMM account for 8% of the Gross National Product of their respective countries. This means that CTMM is as important to the South African economyas New York is to the US economy.

Only three American cities have larger populations than CTMM (New York, (7.3 million), Los Angeles (3.5 million) and Chicago (2.7 million).

It is clear that globalisation has enormous implications for cities all over the world. While globalisation creates exciting new opportunities for growth and prosperity for export-oriented cities, it poses a real threat to other regions that persist in “business as usual”. An important implication of globalisation is that the powers of national governments to influence economic growth is reduced, but those of cities are increased. This is because an increasingly open global trading system is leveling the competitive advantages of countries while leaving the unique advantages of cities untouched. The battlegrounds on which companies will compete in future will therefore be cities, rather than countries.

The implication for the way in which cities, and especially urban regions and metropolitan areas, are governed is that clear strategies need to be set that will ensure international competitiveness.

The implication of this is that CTMM must be regarded as a serious contender in the global sense and that this merits the commitment of significant resources to economic development strategies that will transform it into a globally competitive player.

4.2Developing world.

The inherited dual nature of South Africa's socio-economic environment places it in both the developed and developing country spheres. The challenges and opportunities this presents are unique.

CTMM, with its modern infrastructure is well placed geographically to provide a gateway to the southern regions of Africa for the provision of top quality goods and services.