SESSION 1 Economic development in the Western Cape

SESSION 1: ‘Economic development in the Western Cape’ - Brendon Roberts Head: Dept of Economic Development & Tourism Western Cape Province 4 March 2004 IDP Conference 2004 “Developmental Governance in Action”

CONTENT 1. Economic Development WC Context 2. ‘i. Kapa elihlumayo’ F Growth and Development Summit F Latest developments: ‘i. Kapa elihlumayo’ 3. Progress with Micro-economic Strategy F Drafting process F Preliminary picture F Provincial response 4. Closing remarks Department of Economic Development and Tourism

1. Economic Development WC Context Our Reference Points • Within national policy framework - i. e. RDP and GEAR • Social Dialogue through NEDLAC over many years • Nat. GDS: President’s call: Social partners work together! => Government, labour, business & community constituency => To address key economic challenges: = Growth = Investment = Employment = Overcoming poverty and inequalities = People–centred development Department of Economic Development and Tourism

1. Economic Development WC Context Common Plan of Action by Social Partners • Promoting and mobilising investment and creating decent work for all • Ensuring economic empowerment for all, especially for black people, workers, people with disabilities, women and youth • Eradicating poverty and addressing the legacy of under-development • Strategically engaging globalisation to the best advantage of the country Department of Economic Development and Tourism

1. Economic Development WC Context Common Plan of Action by Social Partners To give effect to this vision, the constituencies commit to: a) Building an enduring partnership through a shared vision. b) Addressing urgent challenges: Selecting from many possible interventions those which hold the promise of the greatest possible impact in the shortest possible time for accelerated investment, job creation, improved efficiency and productivity, greater social equity, and a fairer distribution of economic opportunities and rewards, while undertaking serious social dialogue on broad policy frameworks. c) Lending a hand through active participation Department of Economic Development and Tourism

1. Economic Development WC Context National GDS vision Making South Africa … • The leading emerging market - destination of first choice for investors -whilst retaining and expanding social equity and fair labour standards. • A productive economy with high levels of service, highly skilled workforce & modern systems of work organisation and management. • A society in which there are economic opportunities for all, poverty is eradicated, income inequalities are reduced and basic services are available to all. • A society in which our people, our most precious resource, are given opportunity/support to develop to full potential. • A society that promotes the values of social equity, fairness and human dignity in the global economy. Department of Economic Development and Tourism

2. i. Kapa elihlumayo i. Kapa Elihlumayo: Growing & Sharing the Cape The Provincial Growth & Development Strategy Goals: • promoting economic growth • creating empowerment • reducing inequality • broadening ownership • providing a sustainable social safety net • fight poverty, reduce disparity & improve living standards Department of Economic Development and Tourism

2. i. Kapa elihlumayo i. Kapa Elihlumayo: Growing & Sharing the Cape • Shift in paradigm: from welfare dependence to participation in the economy • Reorganization of Government budgets: pro-poor • Reorganization of service delivery: integrated & cooperative • Recognition that Government cannot do it alone: we need our social partners to join us to achieve our goals Department of Economic Development and Tourism

F Growth and Development Summit (GDS) • An effort of “provincialising” the National Growth and Development Summit • Invitation to social partners to participate in a Provincial Growth and Development Summit - Preparation: National GDS as point of departure - Negotiation: on 6 ‘themes’ - Provincial G & D Summit: on 14 November 2003 Department of Economic Development and Tourism

F Growth and Development Summit (GDS) 6 themes of GDS 1. More Jobs, Better Jobs and Decent work for all 2. Infrastructure, Investment and the logistics challenge 3. Economic participation and enterprise development 4. Human Resource Development 5. Governance and Local Development 6. Institutional arrangements for social dialogue and partnership formation Department of Economic Development and Tourism

F Growth and Development Summit (GDS) Key outcomes of Provincial Growth & Dev Summit 1. A ‘Framework Agreement’ on Growth & Development in the Western Cape Province 2. Commitment to making the WC a world-class region 3. Agreement on the need for on-going, institutionalised social dialogue beyond Growth and Development Summit Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) COMMITMENTS (16) 1. 100 000 nett new jobs by 2008 (within priority economic sectors) 2. Investment in priority economic sectors (through supply-side support measures, co-ordinated marketing campaigns focused on key global markets and public-private investments in collaborative sector platforms and projects) 3. Expanded Public Works Programme (as short term amelioration for high unemployment of low skilled people and for critical economic and community requirements. ) 4. Provincial ‘rapid response unit’ to defend current investments/jobs (comprising the social partners) Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) COMMITMENTS (16) 5. Strengthening the Proudly South Africa campaign (locally, in particular through public and private procurement processes) 6. Investment in economic and social infrastructure (from the current 1. 1% of GRP to 2. 5% of the GRP by the year 2008 guided by our Provincial Strategic Infrastructure Plan (informed by a Provincial Spatial Development Framework) and the integrated development planning process, aligned to the National Spatial Development Perspective) 7. Improve investment environment (by increasing capacities and efficiencies and by co-ordinating policies and processes across and between different spheres of government, with respect to safety and security, and the regulatory environment for planning and environmental impact. ) 8. New investment in priority sectors (R 5 billion by 2006) Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) COMMITMENTS (16) 9. Human Resource Development Strategy (preparing youth for employment through 10 000 new learnerships, and alignment of Further Education and Training priorities with economic reality: prioritise HIV/Aids, TB and fetal alcohol syndrome treatment) 10. Effective SETAs and Provincial Skills Development Forum (to implement HR Dev strategy) 11. Review regulatory framework for informal trading (conducive to developing micro and small traders) 12. Comprehensive broad-based empowerment strategy (access for historically marginalized groups to procurement opportunities in public and private sectors) Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) COMMITMENTS (16) 13. Opportunities for co-operatives (nurtured in key econ. Sectors) 14. Service delivery to small business (Integrated system) 15. Incubate 100 emerging entrepreneurs (pilot project to graduate entrepreneurs - 30% women) – through integrated system offering full spectrum of services) 16. Integrated transport system (linked to urban planning) Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) Extract: GDS Framework Agreement 6. “GOVERNANCE AND LOCAL DEVELOPMENT” 6. 1 Planning and Resource Allocation 6. 1. 1 In the first instance, it is govt’s role to ensure effective provincial-municipal co-operative planning and budgeting through a provincial growth and development strategy (PGDS) that is aligned with the annual municipal integrated development plans (IDPs), which specifically support sector development strategies at the local level and include the Integrated Rural Development Strategy and Urban Renewal Programme. ” Department of Economic Development and Tourism

FGrowth and Development Summit (GDS) Extract: GDS Framework Agreement “In this work government will ensure that the national spatial development perspective (NSDP) pervades the planning perspective throughout the province, that it guides sectoral and investment development spending and that there is an alignment of parastatal and state-owned enterprises delivery in support of PGDS. ” Department of Economic Development and Tourism

F Latest Developments: i. Kapa elihlumayo • Effectively, i. Kapa Elihlumayo became the Provincial Development Strategy • It is informing the provincial budget Six “pillars” of the IE strategy: 1. 2. 3. 4. 5. 6. A human resource development strategy A strategic infrastructure and Logistics plan; A micro-economic strategy; plan for building social capital; A co-ordination/communication strategy, and A spatial development framework Department of Economic Development and Tourism NB

F Latest Developments: i. Kapa elihlumayo • 2004: Six “pillars” being developed simultaneously • Post Provincial Growth Summit process: F Municipalities part of the “Government Sector” & part of post–PGDS talks at PDC • Municipalities to be kept informed of GDS and PGDS process Department of Economic Development and Tourism

3. Progress with Micro-economic Strategy • Province developing a micro-economic strategy • Goal? – “To guide and direct Provincial involvement in the private sector” – “. . and the public sector for the purpose of achieving a growing sustainable (globally competitive) labour-absorbing Economy – (see MTBPS 2003) Department of Economic Development and Tourism

Micro-Economic Strategy (MES) INTRODUCTION Key Questions • Is there meaning in a provincial MES? • If so … What are the most appropriate actions that a provincial government can take to achieve a sustainable, growing, labour–absorbing economy? Department of Economic Development and Tourism

Micro-Economic Strategy (MES) APPROACH • Look at global context • Look at economic trajectory without intervention • Look at SWOT to determine outlook for industry over 5 years and labour absorption (i. e unskilled) • Framework: National strategy – Micro-Economic Reform Strategy (MERS) – National Research & Development Strategy (NRDS) – Integrated Manufacturing Strategy (IMS) – SMME development (empowerment creator in response to market failure = govt intervention) Department of Economic Development and Tourism

Micro-Economic Strategy EIGHT PHASES OF DRAFTING (8) Phase 1: ‘quick & dirty’ exercise (team: academics, prov. depts, officials ) – not comprehensive - threats/ opportunities Phase 2: Phase 3: Phase 4: Phase 5: Comprehensive first draft MES Cabinet engagement: 1 st draft – prepare 2 nd draft Consultations with social partners on 2 nd draft Cabinet engagement: key inputs into 3 rd draft, - Action plan and consider budgetary implications Phase 6: Public launch across province Phase 7: Incorporate into provincial MTEF Phase 8: Implement interventions: in action plan/budget Department of Economic Development and Tourism

Micro-Economic Strategy GLOBAL CONTEXT GLOBAL: Powerful forces at work in global economy. = Division of labour = Currency manipulation = Oil price; trade agreements; proximity to ports; job shedding CONTINENTAL: Afro-pessimism; African Renaissance REGIONAL: SADC Free Trade Agreement NATIONAL: Macro-Economic Policy = Currency fluctuation; production move to coast Department of Economic Development and Tourism

Micro-Economic Strategy LOCAL CONTEXT: WESTERN CAPE The story makes depressing reading… Ø Primary & Secondary sector stagnation Ø Decreasing employment for unskilled => Skills mismatch (e. g. tourism booming, but part-time labour used to meet skills requirements) Ø Very few sectors in the Western Cape offer significant employment possibilities to the unskilled and semi-skilled ! Department of Economic Development and Tourism

Micro-Economic Strategy Economic trajectory • • • Growth Industries (if nothing is done) Post & Telecoms (cell phones, 2 nd fixed line operator) Wine grapes Indigenous flowers (fynbos) Beverages (wine) Transport equipment (boats & autos) Hotels & Restaurants (tourism) “Other business activities” (film industry) Food Construction (driven by foreign property purchase) Retail Land transport Department of Economic Development and Tourism

Micro-Economic Strategy Economic trajectory • • • Shrinking industries (if nothing is done) Citrus Table grapes (water shortages) Dairy & poultry (foreign competition) Aquaculture (long lead time for abalone) Fishing (pressure on fish stocks) Textiles (foreign competition) Leather & footwear (foreign competition) Paper & Publishing (foreign competition) Chemicals (environmental concerns at the refinery) Clothing (foreign competition) Department of Economic Development and Tourism

Micro-Economic Strategy Economic trajectory • • • “Stable” sectors (if nothing is done) Everything else (± 30 sectors) Vulnerability to global forces beyond our control Deciduous fruit as an example = Fashion varies demand = New plantings in China = New cold storage technology Prevailing paradigm: “Start from what we have” Complacency Lack of global business knowledge Department of Economic Development and Tourism

Micro-Economic Strategy Economic trajectory Consequences for labour (if nothing is done) • Very few industries (9 out of 50) in WC use significant numbers of unskilled labour • Only 3 out of the 9 are expected to grow significantly in the next 5 years • 1 out of the 3 is expected to become more mechanized • This leaves 2 sectors to absorb unskilled labour: Hotel & restaurants and/or construction combined they are 4. 4% of GDPR Department of Economic Development and Tourism

Micro-Economic Strategy Economic trajectory CONCLUSIONS (if nothing is done) NB • Based on analysis, GDPR in constant 2004 Rands would be 10% lower in 5 years’ time (all else being equal) • The outlook for the poor and marginalized looks very bleak, if nothing is done • What’s to be done? => Select specific sectors => Develop strategies and shape interventions => Intervene ! Department of Economic Development and Tourism

Micro-Economic Strategy Integrated Action Plan CROSSCUTTING KEY INPUT ISSUES SECTORS KEY GROWTH SECTORS INTEGRATION Infrastructure Transport Exports SMME Access to Finance Telecom’s Tourism Value Addition HRD Agriculture ICT and Business Services ICT Geographic Regions Cultural Industry WC Boat building WC Oil and gas WC: Building social capital Energy Technology WC: • Harbours • Nat. R&D Strategy • Biotech Strategy • Animal. Husbandry • Sheep Department of Economic Development and Tourism

Micro-Economic Strategy IMPORTANT FOR MUNICIPALITIES ! • Analyse value chains/clusters: forward/backward links in region • Region-wide & sector specific inventions/ innovations; R&D for new products and services • A ‘facility’ to identify major new areas of economic activity • MES to guide municipal – align IDPs with MES. • MES to address municipal economic development challenges: F Strengthen Provincial local coordination & budget alignment F Establish municipal level economic database F Address capacity shortage in municipalities F Building relations of trust (social capital) Department of Economic Development and Tourism

4. Closing remarks … BIG QUESTIONS • Can government pick sector “winners”? • Should government pick sector “winners’? • Should government not focus on “market failures” (like HRD) and generic support (SMMEs)? … INITIAL ANSWERS: • Intervene in both areas as growing sectors are where SMMEs will develop • Government should influence the trajectory by encouraging the emergence of “new areas of economic activity” • Government intervention may mean financing initiatives and/or brining its influence to bear Department of Economic Development and Tourism