Blueprint full report

3,481 views

Published on

Full report - Blueprint for the Economic Development of Durban

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
3,481
On SlideShare
0
From Embeds
0
Number of Embeds
2,113
Actions
Shares
0
Downloads
28
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Blueprint full report

  1. 1. A BUSINESS VISION FOR THE ECONOMIC DEVELOPMENT OF DURBAN Local Economic Development is about competitiveness – it is about companies thriving in competitive markets and locations thriving in a competitive, globalised world. (Meyer-Stamer) June 2013 Page | 1
  2. 2. Contents Contents................................................................................................................................................2 INTRODUCTION..............................................................................................................................5 EXECUTIVE SUMMARY...................................................................................................................7 THE VISION IN SUMMARY .............................................................................................................9 GOAL 1: INCREASED INVESTMENT IN THE CITY’S ECONOMY ............................................................9 GOAL 2: INSTITUTIONAL PARTNERSHIP AND COLLABORATION ......................................................10 GOAL 3: CREATION OF MEANINGFUL EMPLOYMENT .....................................................................11 GOAL 4: THE ALIGNMENT OF SKILLS DEVELOPMENT AND EDUCATION TO THE REQUIREMENTS OF ECONOMIC GROWTH AND JOB CREATION IN THE CITY...................................................................11 GOAL 5: THE PROMOTION AND DEVELOPMENT OF A VIBRANT SMALL BUSINESS SECTOR AND SUSTAINABLE ENTERPRISES WITHIN IT............................................................................................12 GOAL 6: THE PROVISION AND MAINTENANCE OF ADEQUATE INFRASTRUCTURE...........................12 GOAL 7: BUILDING AN ICONIC REPUTATION AS A GREEN CITY .......................................................13 GOAL 8: THE ACHIEVEMENT OF ‘INTERNATIONAL DESTINATION’ STATUS FOR LEISURE, BUSINESS AND OTHER TOURISTS ....................................................................................................................13 GOAL 9: THE REJUVANATION OF THE INNER-CITY ..........................................................................14 GOAL 10: A CRIME AND GRIME-FREE CITY ......................................................................................14 THE STATUS QUO.........................................................................................................................15 GOAL 1.........................................................................................................................................16 INCREASED INVESTMENT IN THE CITY’S ECONOMY.....................................................................16 Foreign Direct Investment...........................................................................................................16 Local Expansion and Economic Growth.......................................................................................19 Manufacturing.............................................................................................................................19 Business Retention and Expansion..............................................................................................20 Economic Clusters........................................................................................................................21 Maritime......................................................................................................................................21 Incentives.....................................................................................................................................22 Certainty......................................................................................................................................22 Page | 2
  3. 3. Land Use......................................................................................................................................23 GOAL 2.........................................................................................................................................23 INSTITUTIONAL PARTNERSHIP AND COLLABORATION.................................................................23 Consultation.................................................................................................................................23 Public/Private Partnerships..........................................................................................................24 GOAL 3.........................................................................................................................................26 CREATION OF MEANINGFUL EMPLOYMENT................................................................................26 Job Creation.................................................................................................................................26 ‘Town and Gown’.........................................................................................................................27 Employment Promotion Agency..................................................................................................28 Migration.....................................................................................................................................28 GOAL 4.........................................................................................................................................30 THE ALIGNMENT OF SKILLS DEVELOPMENT AND EDUCATION TO THE REQUIREMENTS OF ECONOMIC GROWTH AND JOB CREATION IN THE CITY...............................................................30 Education and Training................................................................................................................31 Appropriate Skills.........................................................................................................................33 Jobs Centre..................................................................................................................................34 GOAL 5.........................................................................................................................................35 THE PROMOTION AND DEVELOPMENT OF A VIBRANT SMALL BUSINESS SECTOR AND SUSTAINABLE ENTERPRISES WITHIN IT........................................................................................35 Enterprise Development..............................................................................................................36 Policy and Strategy Development................................................................................................37 Small Industry..............................................................................................................................37 Procurement................................................................................................................................38 Supplier Development.................................................................................................................38 Linkage Platforms........................................................................................................................39 GOAL 6.........................................................................................................................................40 THE PROVISION AND MAINTENANCE OF ADEQUATE INFRASTRUCTURE ....................................40 Page | 3
  4. 4. Infrastructure .............................................................................................................................40 Infrastructure Challenges.............................................................................................................42 Development Champion..............................................................................................................44 Roads...........................................................................................................................................44 Dube Tradeport ...........................................................................................................................44 The Port.......................................................................................................................................45 GOAL 7.........................................................................................................................................48 BUILDING AN ICONIC REPUTATION AS A GREEN CITY..................................................................48 Green Buildings............................................................................................................................49 GOAL 8.........................................................................................................................................51 THE ACHIEVEMENT OF ‘INTERNATIONAL DESTINATION’ STATUS FOR LEISURE, BUSINESS AND OTHER TOURISTS.........................................................................................................................51 Tourism .......................................................................................................................................52 The Beachfront............................................................................................................................52 Events..........................................................................................................................................53 Leisure Nodes..............................................................................................................................53 City-wide Tourism........................................................................................................................54 Holiday Packages.........................................................................................................................54 Durban Tourism...........................................................................................................................54 Cultural Hubs...............................................................................................................................54 Skills in Hospitality.......................................................................................................................55 GOAL 9.........................................................................................................................................55 THE REJUVENATION OF THE INNER-CITY.....................................................................................55 Urban Rejuvenation.....................................................................................................................56 Urban Improvement Precincts.....................................................................................................56 Informal Trading..........................................................................................................................57 Derelict Buildings.........................................................................................................................58 Public Transport...........................................................................................................................59 Page | 4
  5. 5. The Point......................................................................................................................................60 GOAL 10.......................................................................................................................................60 A CRIME AND GRIME-FREE CITY...................................................................................................60 Crime...........................................................................................................................................62 Grime...........................................................................................................................................64 CONCLUSION...............................................................................................................................64 REFERENCES.................................................................................................................................64 APPENDIX 1..................................................................................................................................68 What is Local Economic Development (LED)?..................................................................................68 INTRODUCTION The Durban Chamber embarked on this initiative for two main reasons. Firstly, it wished to challenge the Business community in eThekwini, which the Chamber represents, to apply its Page | 5
  6. 6. collective mind to what is required in the City if local economic development of a satisfactory nature is to occur over the next decade or more. Keeping pace with the economic development of the country as a whole is considered less than satisfactory because the City, its Municipality and the private sector, must identify and nurture those things that lie here and have the ability to set the City apart and ensure that it fares better than the country as a whole. Secondly, the Chamber itself felt that the definition of a vision for economic development would chart its own journey into the future as an important stakeholder in the City’s economic growth. This vision, therefore, must direct the Chamber’s strategy in the years ahead as it seeks to enhance its relevance in the context of local economic growth. Since local economic growth is a simple concept at heart, despite the fact that it is complicated by a plethora of definitions and various opinions as to how it is to be achieved, there is little in this vision that may be considered “new”. Indeed, many of the aspects of the vision are already part and parcel of the City’s planning and execution. A great deal of what is thought to be fundamental has been, or is being, done. Some things might need to be done better or, particularly, with greater urgency. The pervasive weakness, however, is the lack of real synergy between the public and private sectors and their inability to work together unceasingly to achieve a common goal. Throughout this document, the word “City” is not used as a synonym for “Municipality”. The Chamber recognises that the City comprises public and private sectors as well as civil society, all of which are role-players in economic (and social) progress. A great deal more could have been written about the necessity for poverty alleviation, the upliftment of disadvantaged communities, social cohesion and many other aspects which are implied by the vision of the Municipality which is “By 2030 the eThekwini Municipality will enjoy the reputation of being Africa's most liveable City, where all citizens live in harmony.” This ultimate vision of a successful City which is attractive to those that live in it because of the quality of collective life, is not compromised because the Chamber has chosen to focus on the particular aspect of economic development without which this all-encompassing vision cannot be attained. In the preparation of this Vision, representatives of member companies and individuals within the Chamber’s leadership have had a hand. None, however, has devoted as much time and effort as Shivani Singh, MCom Economics, an intern on the staff of the Chamber who engaged with members, collated their contributions, did most of the requisite research and drafted much of the text. Page | 6
  7. 7. EXECUTIVE SUMMARY Economic development is arguably better understood by the private rather than the public sector. The reason is clear: the private sector harbours businesses which are the engines for economic growth. The public sector, while contributing significantly to the economy itself, has the role of ensuring that the environment is conducive to Business development. Therefore, the strategic discourse by which the most appropriate plans can be adopted requires both the public and private sectors to contribute according to their respective roles; the public sector to set out how it can create a better Business environment, and the private sector to determine how this environment may be used as the fertile ground for economic growth. A sound strategy cannot separate one from the other and their interdependence is the very reason that any strategy needs to reflect strong co-operation and collaboration throughout the process of formulation. The best ambassadors in the promotion of an investment destination are Business people who are able to testify to the hospitability, or otherwise, of the City. In particular, the costs of investing are critical, while a concerted investment strategy is also required. This should take careful account of the fact that investment from within, that is the growth of existing and established businesses, is no less important than the attraction of foreign investment. The continuous implementation of Business retention and expansion strategies is considered essential, while every effort needs to be made to promote clustering, which is recognised as an effective means of accelerating economic growth. The rapid pace of migration into the City requires, among other foci, a particular responsiveness within manufacturing where jobs must be preserved and even created. It is trite to suggest that the private sector must do more to create jobs in order to give relief in a sphere where the country is so severely under threat, not least because of the proportionately high number of younger people who cannot find employment (70,66% of the unemployed population of South Africa is younger than 35 years old1 ). The importance of meaningful occupation, even without significant remuneration, is highlighted, while the City must ensure that pro-active measures are taken to assist those who are jobless. Sustainable job creation will result from Business and economic growth, and not simply from the exercise of intent, although Business people identify many disincentives when it comes to employment. While these reflect the perceived rigidity inherent in labour legislation and the pre-eminence of unions within the labour market framework, the shortage of appropriate skills among those 1 Stats SA. 2013. Quarterly Labour Force Survey, Quarter 1, 2013. Page | 7
  8. 8. seeking employment remains an acute problem. Particular attention given recently to the advancement of the maritime sector in Durban, presents opportunities for the development of skills which have real value in the local economic context. In order to ensure the best outcome, Business and academic institutions, especially the universities, must seek to derive optimal mutual benefit from ongoing engagement. Experiential learning is the best means for the acquisition of technical skills and there is a critical part for businesses to play in providing internships and apprenticeships. At the same time, entrepreneurial activity, especially among young people, needs stimulation. Notwithstanding the inadequacy of national policies and strategies as regards the development of the SMME sector, the City must make this a priority by building on the work done by the Business Support unit of the Municipality and, ideally, introducing a strategic plan for the particular growth of small industry. Among the most daunting challenges facing the City is that of ensuring that infrastructure becomes the facilitation partner to development, but in such a way that the costs are not prohibitive, either to the Municipality, or developers. Delays in the implementation of developments, or the requisite infrastructure, must be reduced significantly to minimise costs and encourage investment. So-called ‘catalytic projects’, which are those offering the best economic yields in terms of growth, must be expedited by accelerated procedures. The Dube Trade Port and the conceived aerotropolis, together with the dig-out port and the Municipality’s back-of-port local area plan, require particular attention as stimulators of economic growth. The eThekwini Municipality has earned notable recognition for projects which have aligned the City with contemporary expectations relating to the protection of the environment in the interests of sustainability. With the greater co-operation of the private sector and some greater intensity, the City could achieve iconic status in this regard. In the sphere of tourism, a similar aspiration is desirable. While there is reason to be encouraged by the major events which have been staged very successfully in the City, the number of international visitors for leisure and other purposes is disappointing. The City needs to revise its image of itself in order to dispel negative impressions of apathy, social divisiveness and laissez faire. The attractive elements of a ‘laid back’ lifestyle must be complemented by a dynamic vibrancy which caters equally for movers and shakers and fun-seekers. Among other corrective actions, special attention must be given to the inner City and the urgent necessity for rejuvenation. Partnership with property owners through the mechanism of Special Rating Areas (or Urban Improvement Precincts) requires encouragement, for this is a means Page | 8
  9. 9. whereby municipal services may be augmented with the objective of enhancing property values. It is necessary to dispel the perception that development in the northern part of the City has shifted its heart; it has created a new development node which should not detract from the appeal of the traditional CBD. Much of the appeal has been lost, not directly because of development elsewhere, but because of neglect and increased crime and grime. Increasingly, the City exhibits a character of non- compliance and poor enforcement. The Chamber’s vision of the City which it serves, and has done for a century and a half, includes international recognition by tourists and investors; a citizenry active in its contribution to the life of a residential and Business location of choice; smart, efficient and green ways of doing things; a vibrant and developing Business community and, above all, such economic growth that may be distributed to provide jobs, improve social cohesion and uplift the poor. THE VISION IN SUMMARY GOAL 1: INCREASED INVESTMENT IN THE CITY’S ECONOMY This will be achieved by • active engagement in investment promotion activities to attract FDI; Page | 9
  10. 10. • an adequately-resourced investment promotion agency with a strong contribution in its activities by the private sector; • affording leading local Business people a title such as “Business Ambassador”; • focus on the fundamentals of the economy, viz. employment, adequate infrastructure development and the creation and maintenance of an environment conducive to the successful conduct of Business in as many sectors as possible, and notably in manufacturing; • the promotion of investment in the manufacturing sector; • a cohesive and dynamic Business Retention and Expansion Programme; • the promotion of economic clusters; • more pro-activity in advocacy to release land for economic development. GOAL 2: INSTITUTIONAL PARTNERSHIP AND COLLABORATION This will be achieved by • the facilitation of fair competition and allowing for the markets to function efficiently and competitively; • more facilitation of meaningful discussions between Business and the City, particularly on issues such as the municipal budget; • regular bilateral consultation on the part of the Municipality with Business within an orderly framework which prescribes regular meetings, formal records of agreements and accountability to the agreements reached; • the conscious promotion of public-private partnerships and the identification of opportunities for these to be set up. Page | 10
  11. 11. GOAL 3: CREATION OF MEANINGFUL EMPLOYMENT This will be achieved by • the City ensuring that job creation is a policy priority in the development of economic development strategies; • extending the scope of short-term job creation programmes, such as the Expanded Public Works Programme; • the introduction of a Civic Service programme which offers young people occupation in an orderly and planned environment; • the facilitation of a co-operative learning relationship between educational and training institutions and Business; • the establishment of an Employment Promotion Agency; • ensuring that obstacles to self-employment are removed. GOAL 4: THE ALIGNMENT OF SKILLS DEVELOPMENT AND EDUCATION TO THE REQUIREMENTS OF ECONOMIC GROWTH AND JOB CREATION IN THE CITY This will be achieved by • exploring and undertaking ways by which the pool of hard, especially technical, skills could be expanded; • engaging in awareness campaigns which target young people, their parents and the private sector, and which encourage active participation in learnerships and apprenticeship opportunities; • the establishment of a credible trade test centre in the City; • the establishment of a Jobs Centre; • introducing meaningful incentives for businesses to take-on interns and trainees; • formal Business becoming engaged in curriculum development at academic institutions to help them keep abreast of recent developments. Page | 11
  12. 12. GOAL 5: THE PROMOTION AND DEVELOPMENT OF A VIBRANT SMALL BUSINESS SECTOR AND SUSTAINABLE ENTERPRISES WITHIN IT This will be achieved by • the provision of accessible Business counselling, supported by mentorship programmes, including peer mentorship, at a substantial level of expertise based on experience; • the development of a small industry hub which could also be registered as a Special Economic Zone; • leveraging procurement policies to support local small businesses; • encouraging procurement from local suppliers; • increased attention to supplier development. GOAL 6: THE PROVISION AND MAINTENANCE OF ADEQUATE INFRASTRUCTURE This will be achieved by • the identification of constructive solutions, in the case of development projects, to the questions of who should bear the cost and when; • the Municipality over-riding departmentalism by the facilitation of a senior official who has the authority to get things done; • focussing on projects which will yield the greatest economic returns; • regarding the Aerotropolis as a keynote feature in the local economy and investment promotion initiatives, and making every effort to ensure that it and the Dube Tradeport are well-served by strong logistical linkages; • ensuring that as far as access to the port is concerned, a much higher degree of harmony between the parties, including the private sector, will be attained; • the implementation of the Municipality’s “Back of Port Local Area Plan” as soon as possible; Page | 12
  13. 13. • ensuring that communities understand the benefits that will accrue to them by the dig- out port and associated developments; • the Municipality establishing a truck stop hub in the Back of Port area. GOAL 7: BUILDING AN ICONIC REPUTATION AS A GREEN CITY This will be achieved by • designing and implementing effective plans to encourage a ‘greener’ building sector; • establishing an environmental awareness campaign which, more specifically, will counsel businesses and residents about the advantages of adopting environmentally- sound practices. GOAL 8: THE ACHIEVEMENT OF ‘INTERNATIONAL DESTINATION’ STATUS FOR LEISURE, BUSINESS AND OTHER TOURISTS This will be achieved by • enhancing beachfront experiences in order to attract more people more often; • the appointment of a dedicated precinct manager for the beachfront; • identifying and nurturing other significant attractions (notwithstanding the prominence of the beach among the City’s hospitality and tourism products) which have the potential to complement one another and together constitute a rewarding and enjoyable experience for visitors; • the urgent registration of Durban Tourism as a separate entity governed by an independent board; • ensuring that reliable public transport is available at all times; Page | 13
  14. 14. • establishing meaningful skills development and work placement programmes within the tourism sector. GOAL 9: THE REJUVANATION OF THE INNER-CITY This will be achieved by • the Municipality providing sufficient funding for the optimal operation and maintenance of the CCTV system, as well as the upgrading of the equipment to keep pace with modern developments; • the active promotion of the establishment of Urban Improvement Precincts (or Special Rating Areas, as they are referred to in the legislation); • a review of the policy in respect of informal trading and much more relevant and effective municipal policy to regulate the matter; • the provision of mentorship programmes to encourage informal traders enter the formal economy; • an acceleration of the Municipality’s Better Buildings through the addition of resources. • the provision of an affordable, accessible and efficient public transport system; • the aggressive implementation of development at the Point. GOAL 10: A CRIME AND GRIME-FREE CITY This will be achieved by • improving the efficiency and effectiveness of the enforcement of municipal laws and by- laws; • full coverage for the City’s geographical space through visibility, timely responses and decisiveness from enforcement agencies; • engagement of ‘zero tolerance’ policing strategies; • the mobilisation of community support and the instilling of trust in the capabilities and integrity of enforcement agencies; • proactive reporting of infrastructure breakdown and urban decay. Page | 14
  15. 15. THE STATUS QUO In many ways the City is one which deserves plaudits, and it has received many in recent years. In particular, the Municipality’s financial management is exemplary at a time when most municipalities, including metropolitans, are not financially healthy. But this comes at a cost, and it is a fairly common perception (borne out by some research, but disputed by other investigations), that Durban is an expensive locality for Business. The relevant financial indicators and statistics show that the City is not exceptional in terms of its economic development profile and at best its economy is influenced by exogenous factors. Durban’s economy is now outstripped by three other metropolitan economies and is under pressure from a fourth, Ekhurhuleni. It will be the pre-eminent goal of those who direct and participate in economic development that the City should benefit more from endogenous influences which show that there is dynamism within the local economy itself. It is not sufficient to match the country’s Gross Domestic Product (GDP); we should outstrip it, and the Chamber believes that the City has the inherent potential to do so. Among the reasons for this optimism is the presence of a number of flagship companies; the existence of the port and its planned developments; traffic which moves freely except in certain areas notable for congestion; generally sound infrastructure; a fibre optic network which constitutes the basis of a ‘smart’ Page | 15
  16. 16. City, but which has not been exploited to an optimal extent; and a climate and amenities which should attract tourists in droves. This is by no means a low base for future development, but neither has the City been able to raise the bar. It lags behind Cape Town in popular appeal and behind Johannesburg in economic liveliness. The danger is that Durban residents accept these as the natural state of things and do not actively aspire to competing, and overtaking. If we are to do so, we require a clear vision, a vibrant strategy to achieve it, public/private sector commitment to common goals and a much more dynamic and participative Business community. GOAL 1 INCREASED INVESTMENT IN THE CITY’S ECONOMY Foreign Direct Investment Foreign Direct Investment (FDI) plays a significant role in a country’s pursuit of economic growth. This is equally true of local economies where there may be even less potential for growth and investment on the part of businesses that are already contributing to the local economy. Developing countries believe that FDI inflows have the potential to boost their level of economic growth. This belief is based primarily upon neoclassical growth theories which recognise outside forces as pre-eminent in economic growth. Policymakers believe that low levels of domestic savings limit levels of economic growth by constraining the available resources for investment purposes. As FDI appears to enhance growth, many developing countries view FDI as the solution to restricted growth, as it provides vital external, or new, capital. FDI is also believed to facilitate a Page | 16 Vision An investment environment which is attractive and hospitable to investors both local and foreign and which reflects an optimally constructive balance between the two.
  17. 17. transfer of technology, as well as knowledge and skills, in addition to the mobilisation of foreign savings and allowing access to foreign markets. Due to these advantages of FDI, developing countries choose to enact policies which have the goal of attracting FDI. South Africa has acknowledged the potential for FDI to bridge the gap between domestic savings and investment demand. Former president, Nelson Mandela explicitly cited FDI inflows as an important means by which to boost South African economic growth (Clark and Bogran, 2003:337). The City will actively engage in investment promotion activities to attract FDI. Together, the Municipality and the Business sector will use all means to promote Durban as a safe, stable, secure and desirable investment destination and to ensure that this is so. Of these elements, it is important to recognise that many alternative destinations may be safe, stable and secure. It is the level of desirability, therefore, which is critical. Investors will seek a profitable outlook; less risk; hospitability on the part of local government; easy and affordable access to services; minimal red tape; promptness of official response in terms of the regulatory requirements and a good quality of life; all-in-all, a notably receptive welcome. A key element of successful investment promotion is the development of a “one-stop” service which is well- publicised and has the status to be able to address any issues raised by potential investors. People wishing to invest in development projects, no matter how large or small, have little tolerance and patience for delays occasioned by the involvement of different departments which do not display any urgency. An investment champion is required to ensure that things are done seamlessly. While it will be necessary to create and manage appropriate perceptions of hospitability and benefit through international advertising campaigns, participation in trade missions and exhibitions, and by attractive ‘spin’, by far the most important challenge is to back these up with reality on the ground. This will be done by the provision of evidential information and data to prove the investment potential of the City. For this reason, an adequately-resourced investment promotion agency is necessary, and its credibility will be enhanced by a strong contribution in its activities by the private sector. It will also be done by constant living up to the promises made so that no foreign investor is disappointed by his decision to enter the Durban economy. Among the best ambassadors for the hospitability of a local economy are the Business people who have intimate experience of it. Their word-of-mouth testimonials, either good or bad, are Page | 17
  18. 18. influential among the global Business company that they keep. Such influence will be harnessed by affording leading local Business people a title such as “Durban Business Ambassador”. Many aspects of the investment environment are outside of the ambit of local government, however, yet our City, in common with all metropolitans except Cape Town, is governed by the political party which rules the country. Since the economies of the country’s major cities are critical to the national economy (with the eThekwini Metropolitan Municipality contributing 10,7% to national GDP, and the City of Cape Town Metropolitan Municipality and the City of Johannesburg Metropolitan Municipality contributing 11,2% and 16,8% respectively2 ), they have an obligation to influence national decisions which have the effect of either constraining the attraction of FDI or encouraging it. Foreign investors often seek meaningful incentives in the form of competitive corporate and individual income tax rates; tax holidays; investment and financial subsidies; soft loan or loan guarantees; electricity tariff concessions in the greenfield phase; financial expatriation guarantees and Research and Development (R&D) support. Particularly in the South African context, the labour regimen should not make employment an undesirable risk, while education and training should ensure that adequate skills will be available at hand. These are all matters within the purview of the national government which require attention if there is to be economic progress and job creation at local levels. Then the City would be in a position to host and manage meaningful special economic and free trade zones. While the benefits of economic growth as a result of FDI inflows must be acknowledged, the Keynesian ‘Accelerator’ theory finds that it is not FDI inflows which ‘cause’ economic growth, but rather, it is economic expansion which attracts FDI inflows. Thus, notwithstanding the urgency of attracting FDI, the City will focus on the fundamentals of the economy, viz. employment, adequate infrastructure development and the creation and maintenance of an environment conducive to the successful conduct of Business in as many sectors as possible, and notably in manufacturing. Foreign investors will perceive economic expansion as an opportunity for long-run profitability and choose to invest in Durban. 2 Constant 2005 prices. Source: IHS Global Insight (2012) Page | 18
  19. 19. Local Expansion and Economic Growth Investment of foreign capital is not sufficient for the economic growth to which the City should aspire. Every encouragement will be given to local companies to expand, while companies head- quartered in other parts of the country, which may be considering expansion, will be drawn to Durban. This requires a conscious strategy of intervention, for it will not happen if the normal course of events is allowed to prevail. The reason is that, by virtue of existing advantages and the momentum sustained by these, companies will tend build on what they have rather than look elsewhere for a new, and perhaps more advantageous, start. The partnership initiative in Leeds (see Goal 3) was able to attract head offices, and a similar strategy in Durban would assist in strengthening the City as a source of growth and profit. It is noted, too, that companies based in other provinces, mainly Gauteng, but operate in, or at least benefit from, Durban and its economy, are less inclined to make contributions to enterprise development or corporate social investment outside of their bases. Relative to Gauteng in particular, therefore, the economies of Kwa-Zulu Natal (KZN) and Durban, in particular, are disadvantaged. Manufacturing Given that the New Growth Path has identified manufacturing as an economic sector that requires particular development, and that manufacturing offers more job creation opportunities than most other sectors, efforts in promoting investment should be concentrated within this sector. The City’s manufacturing base is sound, but not growing conspicuously and the facilitation of such growth requires attention if jobs are to be created and the City’s economic growth assured. There are several particular factors which may be impediments to such growth. It is likely that many manufacturers would identify the labour regimen as one of them. The reality, however, is that productivity is low and it is this, more than wage levels perhaps, that inhibit investment in new products or greater volumes to service new markets. It is recognised, too, that market intelligence in the industrial sphere may be limited, especially insofar as emerging African markets are concerned. The point is made elsewhere in this document that it is lack of market knowledge that constrains the development of small industry, but this might be equally applicable to larger companies. From the City’s point of view, some or all of the following strategies would encourage industrial growth: • An enabling regulatory environment in which industrial expansion and greenfield development is easy to achieve; Page | 19
  20. 20. • Smart incentives and the availability of other facilities which assist in the initiation costs of such expansion and which will yield returns to the City later; • More attention to the physical attractiveness of industrial areas; • Reliable delivery of services, notably electricity, water and waste; • Facilitative, rather than punitive tariffs associated with the above; • An attitude on the part of the Municipality, and particularly among officials, which conveys the message of a level of care and concern and a recognition of the value of manufacturers as employers and significant contributors to the City’s economic welfare. Business Retention and Expansion Within a business-friendly environment, local companies, as well as other South African businesses, may be encouraged to invest in growth and expansion. Aside from ensuring that the Business environment is indeed optimally hospitable, two other means of encouragement are advanced. One is the implementation of a cohesive and dynamic Business Retention and Expansion Programme (BR and E). At the most sophisticated level, this involves careful recording and analysis of data that emerges from businesses when asked to make input on those elements of the local Business environment which they find enabling or inhibitive, and what they would like local government to do in order to make the prospect of further investment attractive. The programme may also include an interventionist mechanism through which new product development, export opportunities and large/small linkages, for example, may be advanced. Such a programme depends for its success on a high level of cooperation between public and private sectors, both in the philosophical as well as the practical, implementational realms. At the most basic level, however, BR and E is on-going, face-to-face engagement between Business people and local government officials which may be done in a less formal, but no less frequent, way. It is a way to ensure that the former better understand the priorities of City administration and the constraints which cannot permit free rein, while the latter become more intimately acquainted with the elements of Business and, more specifically, the people who constitute the engines of the existing local economy. Page | 20
  21. 21. Economic Clusters A second strategy is the promotion of economic clusters. Pyke and Sengenberger (1992) find that in an ideal cluster, a small firm may reap economies of scale and scope much like those afforded to larger corporations. This is because a cluster facilitates an inter-firm division of labour, as well as vertical specialisation. This allows firms to enhance their efficiency and reduce their operational costs. Economic clusters also pose the obvious advantage of physical nearness. Therefore, clusters are operative in terms of economic transactions, as well as in the exchange of ideas and diffusion of Business and technical knowledge. From a theoretical perspective, firms in a cluster have superior capacity to cope with radical change, such as competitive pressure, as they reap numerous positive externalities from the cluster, and therefore have to deal with fewer challenges than an isolated firm. Firms in a cluster also have the capacity to organise collective action to cope with mounting pressure, for example, through the re-organising or founding of cluster-level institutions with the purpose of supporting cluster-firms in fields such as training, technology and information. Local government may contribute to the establishment and improved performance of industrial clusters through the provision of infrastructure, real estate, training and Business incubators. Development agencies may contribute through the provision of finance and technical assistance. It will be the role of national government to create an appropriate economic and regulatory framework, which will stimulate co-operation and action at the local level. In a well-ordered local economy these clusters will develop with a degree of inevitability. Durban is able to show several examples of successful clustering. The process may be accelerated by the provision of particular incentives, for example, or through planning and zoning techniques. The essence of the Back of Port plan is clustering by these means, while the success of the Durban Automotive Cluster is well known. The City will continue to encourage clustering, particularly within the maritime sector and those related activities which service it, or derive benefit from it. The legislation governing the establishment of Special Economic Zones (SEZs) provides a framework which should be exploited as an appropriate vehicle for the promotion of clustering, which should be viewed as a process of inclusivity rather than exclusivity. Maritime The maritime sector is considered to offer particular benefit to the City and its economy in the future. Together, the Municipality and the Chamber, as the representative of the Business community, will do all that is possible to promote commercial and employment opportunities Page | 21
  22. 22. within the maritime industry. It will require the availability of people, especially young people, with appropriate skills; the existence of a strong community of practice within maritime law; the development of technologies; the development of repair and ship-building and fitting services and the full cooperation of the academic sector which should ensure that a range of courses are offered in Durban, some of which may enjoy international approbation. Incentives In common with many cities and towns, the Municipality commissioned a study preparatory to the adoption of an incentive policy to encourage investment. This has not yet been implemented. Incentives are controversial. There are those who maintain that a location which offers what investors want most, does not need to offer incentives, and that when they are offered, they are a signal that the location is not so attractive after all. This is a view held by Professor Marcel De Meirleir, for example, who is an international consultant on Business location. On the other hand, the offering of incentives is common throughout the world, and appears to work, particularly in association with such structures as special economic zones and industrial development zones. The costs of providing services, for example, have to be met, and if some companies are receiving concessions, others might have to pay more. This element of cross-subsidisation should not be overlooked if incentives are being contemplated. The Chamber proposes that any policy regarding incentives should be borne of proper consultation processes with the Business community. In developing a policy, certain conditions should be included. These include: • A recognition that local investment leading to economic growth is no less important than greenfield FDI; • The setting of a time limit for the application of the incentive; • The assurance that the incentive constitutes an investment which will yield dividend after its expiry; • A transparent framework of incentives to avoid ad hoc, and possibly inequitable, decisions. Certainty A fundamental requirement is also around the need for certainty – this is something that South Africa as a whole is hugely constrained by and Durban would do well to provide a more “certain” Business environment. This would include being able to implement existing municipal Page | 22
  23. 23. spatial plans, municipal departmental alignment, leadership in decision making and decisive action on bulk infrastructural requirements. Land Use The Municipality has been very proactive insofar as the preparation and adoption of strategic spatial plans for the whole City are concerned. This is to be lauded and utilised to drive investment and development – provided the bulk infrastructure is aligned. However, a fundamental issue relates to the release of land from agriculture. This is a strategic issue which needs to be dealt with ‘head on’ with the Provincial and National Departments of Agriculture. The City will have to be a great deal more pro-active in its advocacy to release land for economic development. GOAL 2 INSTITUTIONAL PARTNERSHIP AND COLLABORATION Consultation Planning process regulations, together with the Constitution, require Government to consult with communities and stakeholders in the formulation and development of its plans. However, it usually transpires that such consultation occurs after policies and plans have already been formulated, and sometimes even after they have already been approved within municipal structures, giving rise to the perception that stakeholder consultation is done for the sake of statutory compliance. Page | 23 Vision The City engages in participative, facilitative and accountable governance, which is characterised by the development of a meaningful and co-operative relationship between the private and public sectors.
  24. 24. In the pursuit of good public governance, the City will facilitate fair competition and allow for the markets to function efficiently and competitively. Under these conditions, the private sector can be innovative and effective in ensuring economic growth and development. Good public governance is not the sole responsibility of the Municipality, however, and the private sector has to ‘come to the party’ by making suggestions and proposals, providing quality feedback and influencing laws, regulations and practices. This creates an environment in which markets can function effectively. The Chamber feels that co-operation between the public and private sectors is non-negotiable, and both parties will do more to facilitate meaningful discussion between Business and the Municipality, particularly on issues such as the municipal budget. The City will go about creating this facilitative environment in a number of ways. Firstly, the consultation process will be clearly understood prior to the commencement of policy planning. Secondly, stakeholders will be offered the opportunity to engage at an early stage in the process of policy or strategy formulation. Thirdly, when comment is required, a reasonable time will be allowed for this, bearing in mind that bodies such as the Durban Chamber need to consult members, and fourthly, and most importantly, the submissions of Business as a key stakeholder will be thoroughly considered. The Chamber welcomes the re-activation of the Best City Practice Commission which was established some years ago, and then abandoned. This will complement a Planning Commission for the City, which is also warmly welcomed in imitation of the national and provincial models. It is not sufficient, however, and should not preclude regular bilateral consultation on the part of the Municipality with Business within an orderly framework which prescribes regular meetings, formal records of agreements and accountability to the agreements reached. The Chamber recognises that it will do all it can to ensure that the participation of Business in any consultation process is appropriately representative of the Business community, especially as far as the major drivers of the local economy are concerned. Contributions must be of suitable quality, characterised by insights, foresight and a broad recognition of the ambit of the City’s economy. Public/Private Partnerships Once there is good pubic governance and co-operation between the private and public sectors, there is an opportunity for the development of Public-Private Partnerships (PPP). The Chamber believes that there must be conscious promotion of PPPs and the identification of opportunities for these to be set up. They are unlikely to occur without deliberate strategy. Page | 24
  25. 25. PPPs have two distinct advantages for the economy at large: 1. Mobilisation of private capital (either to supplement public resources or release them for other public needs). Governments face an increasing strain on public resources, with pressure stemming from rapid urbanisation; the rehabilitation of aging and outdated infrastructure; the provision of services to previously unserved or under-served areas; as well as the need to expand networks to new populations. The private sector has an advantage over the public sector as it possesses skills and assets to which government does not have access. By entering a PPP, with the goal of maximising profits, the private sector’s particular capabilities are available for what are essentially public projects. Thus, if the PPP is structured correctly, it may mobilise previously untapped resources. 2. Improvement of efficiency and the use available resources in a more effective manner. A critical challenge for government is the efficient use of scarce resources due to bureaucratic procedural constraints and limited skills in project management. The private sector enters a project with the clear goal of profit maximisation, which is generated by increasing efficiency in investment and operations. If the PPP is structured to allow the private sector to maximise profits and thus cost-effectiveness and efficiency, projects may be implemented a good deal quicker and at lower cost. This will increase the chances of services etc. being economically sustainable and provided at affordable rates (even after satisfying the profit requirements of the private operator). PPPs allow government to pass operational roles to efficient private sector operators while retaining and improving focus on core public sector responsibilities, such as regulation and supervision. In the long run, this approach should result in a lower aggregate cash outlay for government, and better/cheaper services for the consumer. Page | 25
  26. 26. GOAL 3 CREATION OF MEANINGFUL EMPLOYMENT Job Creation In 2011, the unemployment rate in eThekwini was the third highest amongst South Africa’s seven largest metropolitan areas. Although there was a decrease in the number of unemployed individuals, between 2001 and 2011, from 43 percent to 30, 2 percent, the implication is that one in three individuals in eThekwini is unemployed (EDGE, 2012). As far as the province of KZN is concerned, there was a 2, 7% decline in employment from the last quarter of 2011 to the last quarter of 2012. It is likely that our city suffered commensurately. Moreover, the Census 2011 revealed that Kwa-Zulu Natal’s outward migration (281 568 individuals) exceeded its inward migration (250 884 individuals). It also found that 58 percent of eThekwini’s inhabitants possessed less than a matric qualification (EDGE, 2012). This combination of a large number of unemployed individuals, with a lack of skills and a propensity to migrate out of the province, does not bode well for the City’s economic growth path. There are several interventions which are required to create meaningful employment opportunities in Durban. Firstly, the City will ensure that job creation is a policy priority in the development of its economic development strategy. This should not preclude promotion of, and support for, other Business growth and expansion initiatives. Some potential growth Page | 26 Vision The City drives programmes and adopts economic development policies and strategies that lead to the creation of meaningful, sustainable jobs in both the public and private sectors.
  27. 27. sectors are not labour-intensive, yet still offer excellent prospects for economic growth, while still others do not provide opportunities for un- or semi-skilled employees. They are no less important in the context of the local economy for this reason. If incentives for investment and expansion are considered appropriate (see page 15), there would be merit in linking the availability of these to some index of labour-intensiveness which would enable discrimination in favour of companies that employ more people. Similarly, incentives such as tax and rate holiday schemes, land concessions and subsidised service provision, could be tailored to favour youth employment initiatives and the wider economic policy objectives of the City. In this way, national government innovations could be augmented. Secondly, there is greater scope for short-term job creation programmes, such as the Expanded Public Works Programme (EPWP). In this programme, skills training will be a priority to ensure that once an individual has completed this programme, he or she is readily employable. There is potential for growth in the EPWP. With the active support of the private sector, which currently knows very little about the EPWP and how it operates in the City, the work could be expanded. The value of productive occupation should not be under-estimated. Projects in the NGO sector have shown that those young people whose time is organised and who spend time in constructive activity benefit enormously. Not only do they learn new skills, they develop self-confidence and lose the sense of hopelessness that accompanies unproductive idleness. They become more employable over time. In some cases, the work experience develops entrepreneurship which may result in the establishment of subsistence micro businesses which offer self-employment in the first instance. Thus, and thirdly, the City will consider the introduction of a Civic Service programme offering young people occupation in an orderly and planned environment. Such programmes will be utilised to act as a safety net for unemployed individuals. There is plenty of work that may be done by teams of people whose work is planned, are well-led and given encouragement to see the value in the civic services that they are able to perform. Remuneration is not thought to be essential for success. The provision of some suitable clothing and food may suffice. If programmes of this nature draw more generous financial support, the payment of modest stipends would be advantageous. ‘Town and Gown’ The City will participate in the facilitation of a co-operative learning relationship between educational and training institutions and Business. Internships and similar experiential learning initiatives are considered essential in ensuring that education and training Page | 27
  28. 28. are aligned to work-place expectations. While this is essentially a matter for individual institutions and companies to develop relationships, some thought on the part of the parties in joint discussion may identify a constructive role for the City. Employment Promotion Agency The establishment of an Employment Promotion Agency within the City is proposed. In collaboration with the Chamber, this will promote employment by highlighting for the benefit of potential employers as much information as possible to expedite the creation of jobs. The agency could launch flagship projects for work experience and internships, especially for graduates, and, generally, encourage in the public domain an interest in, and commitment to, proper and productive employment. All too frequently, people are unaware of such inducements as tax incentives and other programmes which mitigate some of the perceived difficulties of employing people Obstacles to self-employment must be removed and the City will work to achieve this. Collaboration will promote youth entrepreneurship, engage in entrepreneurship training and mentorship, and promote participation in the formal economy. Migration The migration of potential employees from the province is a matter of concern. Anecdotally, it would appear that many of these migrants are either students (many in the top bracket) who choose universities in other provinces, or young qualified professionals who find far better career prospects in Johannesburg, for example. Thus, in addition to the creation of jobs, the quality of the jobs including their remuneration and career advancement prospects needs attention. This problem would be addressed by a significant economic growth in the local economy and if national company head offices were located here. In Leeds, a sister City, a conscious decision was taken to attract head offices of companies in the financial sector to the City. This was done effectively by a partnership organisation which managed the project and succeeded in drawing new corporate headquarters to the CBD of Leeds. Umhlanga Ridge and neighbouring areas constitute a particularly hospitable environment for the location of head offices and the City would do well to add a plan of attraction to the work of an Investment Promotions Agency. Indeed, the Leeds Initiative is worthy of imitation for its achievements addressed many of the problems that mirror those in our City. Page | 28
  29. 29. The Leeds successes were achieved by so-called ‘place marketing’, ie the marketing of a locality’s competitive advantages. This usually encompasses a two-fold approach: the targeting of particular firms for which the potential host region possesses clear advantages and where there is a cogent value proposition; and a reduction in ‘hassle factors’ which include travelling convenience among others. Headquartering in Gauteng is part of the economic evolution of the country, but with the advent of electronic communication and the technological advances which have followed, there is less of a case for headquarters to be based in Gauteng. This is a generalisation which does not apply to all companies equally: it depends on the nature of their products/services and the markets to which they need to be close. Currently, there appear to be disincentives or ‘push factors’ for location in Gauteng. These include travelling distances, traffic congestion, crime, high staff and rental costs, and, in some cases, a pace of life which is stressful. At the same time, Durban has ‘pull factors’ which need to be exploited more aggressively. These include a road network which allows traffic to flow more easily, significant and proximities (in the case of the airport or the port, for example), good schools and a superior quality of life. In reality, the ‘pull factors’ need considerable force if they are to prevail because of the costs and the human capital disturbances of relocation. In 2006, even before a great deal of the development in the Umhlanga area, a survey3 of commercial and industrial estate agents in KZN sought to investigate factors which deter firms from choosing to relocate to KZN. It revealed that 52 percent of respondents believed that there was no land available for property development, 19 percent believed that planning controls were not only too lengthy, but also extremely onerous and another 19 percent believed that the prices of property and buildings were too high. The survey also revealed that large corporates often encounter a shortage of appropriate, large, greenfield sites, although this inhibition must be a diminished factor currently. It is evident that in KZN, the eThekwini area is endowed with sufficient capacity, appropriate infrastructure and comparative agglomeration economies to make relocation a viable proposition for some, if not all, corporates. The strategic challenge for the private and public sectors will be to drive Durban into an optimal configuration of push and pull factors, i.e. a reduction in local deterrents and an augmentation of pull factors. The short-term objective will be to secure the relocation of at least one top 100 South African firm or major multinational branch headquarter to Durban. This firm will be able to reap first-mover advantages, while also attracting other firms to the region. The externalities from this agglomeration could prove extremely constructive for the local economy. 3 McCarthy, J. 2007. DoED: Draft Strategy for Firm Relocations to KZN. August 2007. Page | 29
  30. 30. GOAL 4 THE ALIGNMENT OF SKILLS DEVELOPMENT AND EDUCATION TO THE REQUIREMENTS OF ECONOMIC GROWTH AND JOB CREATION IN THE CITY Page | 30
  31. 31. Education and Training The severe drawbacks inherent in the South African education system are well-documented. Despite the high proportion of public money spent on school education, which way exceeds that spent by many other African countries, the outcomes are very disappointing, especially in the spheres by which employability in a modern economy may be measured. Literacy, numeracy and, particularly, the standards of proficiency in mathematics and science are well below almost all other countries in the world. Generally, schools, especially those severely handicapped by the absence of suitable facilities, discourage enterprise by virtue of their low aspirations, questionable commitment to the welfare of learners and poor teaching. Adequate preparation for the world of work, as opposed to a particular career, is in very short supply. The expectation that Further Education and Training (FET) colleges should fill this role is often not met. Despite the costly re-capitalisation of FET colleges which was undertaken in 2006/2007, this failed to address some of the fundamental problems which continue to undermine Business confidence in the work and effectiveness of the colleges. The National Certificate Vocational (NCV) courses generally failed to produce technicians with adequate practical knowledge for the production line. The concept of a learnership, quite prominent in the thinking that led to the introduction of NCV courses, failed to attract Business which continued to regret the demise of apprentice and artisanships. FET colleges have limited capacity to meet these expectations. Not only is their equipment likely to lag behind that of companies as technology advances, but lecturers are often ill-equipped to do practical training in workshops. The FET college which was intended to be one type of FET institution in parallel with high schools suffers a crisis of identity. Its courses, such as the NCV, for example, have the status of NQF4, which is precisely that of grade 12. The intention that FET colleges should provide a vocational alternative to traditional high school education appears to have been abandoned, and the FET college has become de facto a post-school place of study. For the reason, perhaps, that training and education institutions have been unable to find suitable workplace contexts for their courses, workplace training has assumed much greater importance in Page | 31 Vision As far as possible within the ambit of its powers, the City will promote the development of skills and capacities to ensure that its economy is well-served, especially in sectors which are identified as being of particular significance to the City’s economic growth.
  32. 32. recent times. Indeed the New Growth Path asserted that that the growth and development of the South African economy will stem from increased workplace training of workers. This will not only improve the skill-set of the South African workforce, but also contribute to an increase in its productivity. Almost all institutions have introduced mandatory workplace experience into their courses. Apart from the enhancement given to the training curricula, internships and similar programmes provide opportunities for young people to learn how to apply the theories they have learnt and grow in confidence in their ability to fulfill the demands of a particular job. That this does not happen in every case is attributable to several factors, including: • Young people, exiting secondary and tertiary institutions to join the world of work, often lack the adequate skills for workplace readiness. This problem is worsened by inadequate linkages between institutions and workplace learning. The qualifications that these young people often obtain, do not always meet the demands of the labour market; • The most dire skills shortage appears evident in the artisan, technological and professional fields; • Individuals which have been unemployed for long periods of time lack sufficient numeracy and literacy skills, reducing their propensity to enter the workforce. Due to the long-term nature of their unemployment, they also fail to obtain vital new skills required by the dynamic economic environment. • The inability of many young learners to deal with mathematics, and numeracy generally, is a deep-seated problem for which no solution has yet been found; • Policymakers have tended to over-emphasise the importance of NQF level 1 to 4 learnerships, with insufficient attention being devoted to more appropriate (intermediate and higher) skills which are required for individuals to become competitive in the knowledge economy. In this regard, the processes leading to the development and accreditation of NQF standards tended to concentrate on lower levels to the detriment of higher ones which would challenge more capable individuals. Above all considerations is the pace at which technological advances occur. Redundancy of knowledge is a feature of the modern Business world which requires new insights and understandings. Continuous retraining of workers is essential in a company which seeks to progress successfully. Page | 32
  33. 33. There is a significant ‘mismatch’ between the skills young people obtain at local tertiary institutions and the skills requirements of Business. “The skills appropriateness and inadequacy of the South African workforce has been one of the factors hindering its economic success in the global economy” (Barnes, 2009:39). However, even though the appropriateness of the skills can come into question, it may be as simple as a saturated labour market. Dias (2005) highlights that by up-skilling the youth, the unemployment issue may not be resolved, as the labour market may be unable to absorb new entrants. Although local government has very limited responsibilities as far as education and training is concerned, the successful development of the local economy makes its involvement, together with that of Business, imperative. In this sphere, more perhaps than many others, close collaboration between public and private sectors will be essential. By various interventions, the appellation “smart” could be validly applied to the City of Durban. Appropriate Skills Through such partnership, the following projects will be undertaken: • A comprehensive survey to ascertain the current workplace skills needs, as well as those likely to be needed in the future as, for example, within a developing maritime industry; • The conduct of a City-wide and comprehensive skills audit to ascertain the extent to which supply and demand are aligned; • Engagement with secondary and tertiary education and training providers in order to bring these institutions in closer touch with market demands; • The establishment of an institutional mechanism to monitor the appropriate development of suitable skills in the City and to identify ways of building the City’s reputation as a centre for particular skills, such as those required in the maritime industry. At the same time, ways in which the City, with the active support of the Business community, could enhance the pool of hard, especially technical, skills should be explored. This will involve the extension of the scale and scope of learnership and traditional apprenticeship programmes to offer alternative skills development trajectories to a larger segment of the youth. There will also be the promotion of a shift away from learnership programmes which offer basic and intermediate skills toward those which offer opportunities geared at an intermediate and high skill-level. There will also be effective alignment of Page | 33
  34. 34. apprenticeship and learnership programmes with the trade test system. This will improve artisan pass rates and ensure that the skills and capabilities developed are relevant to labour market demand. A credible trade test centre in the City is thought to be an attainable goal. The City will also engage in awareness campaigns which target young people, their parents and the private sector and which encourage active participation in learnerships and apprenticeship opportunities. The stigma attached to technical education needs to be removed and this can be done through public awareness campaigns, the profiling of technical high schools and raising the reputation of FET colleges. Jobs Centre The establishment of a Jobs Centre will provide valuable post-school vocational education and training options. Once individuals have completed their training, the Centre will invest in mechanisms which facilitate employment and aid the transition of qualified apprentices into stable, meaningful labour market opportunities. Career and vocational guidance will be made available to all school-leavers and the unemployed, to guide them into fields which not only have vacant positions, but those which meet their skills capability. Developers of large projects where many people live and/or work should be encouraged to include centres for skills and citizenship development, including career guidance and other services of benefit to young people, in particular. These developments could also include facilities which create local opportunities for future maintenance and construction. The particular role of the Chamber is to encourage businesses to access SETA funding, which implies, inter alia, that closer relationships with SETAs need to be developed, and host interns and trainees. The City will create meaningful incentives for businesses to take-on interns and trainees. Exactly what form such incentives should take is not clear, for the Municipality has limited scope to offer incentives. However, if they prove possible within the framework of labour-intensivity, suggested previously, firms may be encouraged to engage more constructively in internship programmes. Private enterprise development of skills and employment opportunities within rural or City fringe environments, should also be given due credit. Many businesses feel that SETAs have multiple shortcomings, which include bureaucratic, rigid and inefficient management and low standards of training. Pauw et al (2006) find that businesses tend to hire and train learners based on their recruitment strategies rather than the need to engage in skills development training. Page | 34
  35. 35. There is a potential for Business to become engaged in curriculum development at academic institutions to help them keep abreast of recent industry developments. Business will also be able to provide insight into which skills are in high demand and those which are over-supplied. This data should be updated regularly and recorded by the Municipality as part of a dynamic skills audit process. GOAL 5 THE PROMOTION AND DEVELOPMENT OF A VIBRANT SMALL BUSINESS SECTOR AND SUSTAINABLE ENTERPRISES WITHIN IT Page | 35 Vision Having considered carefully the factors that determine either success or failure of micro and small businesses, the City will implement strategies to enable the growth of the small Business sector and the sustainability and growth of the enterprises within it.
  36. 36. Enterprise Development The small Business sector, often confusingly referred to as the SMME sector, requires segmentation and the development of different approaches to each segment. The needs of start-up micro businesses, which require stimulation and encouragement, are very different from those that are functional and already have some place in the market. The challenges of unemployment and the need to economically liberate Black people, especially within the youth, have led to undue attention being given to the start-up segment. Many of these enterprises never get off the ground or fail within a short time. At best, they offer relief to unemployment through self-employment. On the other hand, micro and small businesses, which are functional in that they earn income and have clients, have the potential to grow and thence, employ other people. Encouragement for this segment is scant by comparison with the start-ups, particularly in the financial sense. These businesses need growth, both horizontally, by increasing their client base, and vertically, by improving their productivity, their Business practices and the quality of their products. Many agencies engaged in what is commonly called SMME development, including SEDA, Tradepoint and the Chamber’s SMME Desk, have become so exclusively associated with start-up development that they have lost credibility with the small businesses that have progressed well beyond this level. Consequently, there is little sustainability in these organisations because the income that is generated from their services is very limited. These are provided gratuitously in order to meet the socio-political needs referred to earlier. Some enterprises that have received support from Tradepoint to exhibit at overseas trade fairs, for example, have not had the capacity to provide their own marketing material. If that is the case, it is a mystery how they would be able to fulfil a decent-sized export order. The reality is that the small Business sector will not be stimulated by throwing money at it; the critical facilitating factors are capacity-building and market access. Neither the Municipality nor the Chamber, nor any other agency for that matter, should abandon its programmes for new enterprise creation. They should find more successful ways for doing this, however. Reliance on training courses and other information-giving means is palpably inadequate. The translation of the theories of Business into practice is extremely difficult and beyond many who start their own businesses. The need for new enterprise creation is based essentially on the need for some people to employ themselves and, in doing so find a regimen of sustenance for themselves and their dependents. When the new enterprise creator has an inherent spirit of entrepreneurship, this micro-enterprise might grow and then contribute directly to the local economy. Page | 36
  37. 37. The challenge for functioning businesses is to understand the dynamics of Business expansion and growth. These include aspiration and the conscious desire to raise the performance of companies in order to generate more profit and increase their value. It also involves a transition on the part of the operator, by nature a “doer” in the context of small enterprises, to the role of “manager”. These processes require more expert guidance than is readily available at present and it is for this reason that the public and private sectors together should seek ways of providing it. Accessible Business counselling, supported by mentorship programmes, including peer mentorship, needs to be provided at a substantial level of expertise based on experience. Policy and Strategy Development The small Business sector suffers from the absence of cohesive and integrated planning as to how best it may be advanced to achieve the expectations of it in relation to the national and local economies and job creation. Countless initiatives, managed by a variety of different agencies and invariably involving the expenditure of large sums of money, have similar objectives but limited success in promoting a dynamic small Business sector. Fundamental issues that relate to the facilitation of small Business functionality are not dealt with and require the development of comprehensive plans and strategies to ensure that the talk about the importance of small enterprises is translated into reality. This is a challenge for government, and the private sector, at all levels and would be better met if there were a dedicated ministry to lead Small Business development. Small Industry If the small Business sector is generally weak in South Africa, the small industry sector is even less capable of creating jobs. The barriers to entry into small industry are more daunting than in any other sector. Not only is the capital outlay likely to be inhibitive, but knowledge of the market and what it offers is even more critical. It is one thing to identify, perhaps by observation rather than research, what manufactured product might sell to consumers, but people without an intimate knowledge of industry have little idea of what component widgets would be procured by other manufacturers. As a start, it would be valuable to know what components, which could be manufactured here, are imported. The development of a database of information accessible to entrepreneurs wishing to establish and conduct small industries would serve to facilitate the creation of a small industry sector, especially if incentives of one type or another were available. The City will have among its goals the development of a small industry hub which could also be registered as a Special Economic Zone. Page | 37
  38. 38. Procurement The City will leverage procurement policies to support local small businesses. This will add stability to the demand for goods and/or services from these enterprises. The local government tendering policies and processes will be reviewed and adapted, not just to allow for the awarding of more contracts to small businesses, but to encourage their development. Contracts could be broken into smaller parts which could be within the capacity of small businesses to manage, or larger contracts could be awarded to companies that undertook outsourcing to acceptably capable enterprises and/or adopted programmes to ensure that the transfer of skills takes place. It is acceptable, even desirable, that the City will prioritise procurement from local companies. Procurement by the public sector is a powerful means of facilitating black economic empowerment, but it has to be used effectively. This is not always the case at present. Supplier Development More resources will be invested in a specialised supplier development programme which aims to assist suppliers to grow vertically by improving their Business practices and their delivery. This may include financial support for quality assurance achievements, such as ISO certification. The task of improving small Business to enhance its potential for growth requires the support of the Municipality, but it could be a private sector project. Although the above paragraphs have had references to small businesses, the points made apply equally to co-operatives. The formation of co-operatives has been largely haphazard without the necessary intervention that would encourage the right people to collaborate, for the right reasons, within the co-operative model. If the calibre of co-operatives as viable businesses were raised through concerted guidance, a minimum quota of municipal tenders for execution by co- operatives could be contemplated. In order to promote the success and growth of local businesses, especially those in the small Business sector, companies will be encouraged to procure from local suppliers if and where possible. As far as the Municipality is concerned, local procurement should be a matter of policy. Among the information that a BR and E programme will reveal is instances where procurement has to take place outside of the City because the product or service is not available here. This may provide an interventionist opportunity whereby a local company may be persuaded to develop the required service or product. In response to amendments to the Code of Good Conduct relating to the B-BBEE policy, increasing attention will be given to supplier development. The move towards this type of Page | 38
  39. 39. active mentorship offers the potential of meaningful development of small enterprises and goes beyond procurement alone. In particular, supplier development involves skills transfer and, very importantly, the raising of quality of product and service. By these means, small enterprises will become more competitive and more capable of fulfilling additional orders or tenders. In the sphere of small Business growth, and thus job creation, ‘horizontal’ growth by the accessing of more orders must be complemented by ‘vertical’ growth – the improvement of product/service, Business practices and productivity. The Chamber, through its members and its own programmes, believes that it is able to provide constructive assistance in the advancement of small enterprises and favours an arrangement with the Municipality to support the growth of its small Business vendors. Linkage Platforms Despite some justified skepticism regarding electronic linkage platforms, there is value in providing small supplier enterprises and large procuring companies with the opportunity to find one another. As part of its programme of support for micro and small businesses, the Chamber will promote the use of the Supply Chain Network which is thought to be a powerful platform for linkage. This is a country-wide initiative promoted by Absa which arose from the procurement challenges of large corporate such as Group 5. It is a feature of the platform that suppliers earn “points” based on the information they provide when registering. This allows procuring companies to assess the quality of the provision they are likely to receive. The Chamber is also a partner in a similar venture which is being driven by Market Square with some support from the World Bank. The process of encouraging small and large companies to register is underway. The Municipality will take note of these initiatives, even if regulations preclude their use. They deserve encouragement because they aim to promote the development of the small Business sector. Page | 39
  40. 40. GOAL 6 THE PROVISION AND MAINTENANCE OF ADEQUATE INFRASTRUCTURE Infrastructure An effective infrastructure development policy is the cornerstone of any economic growth and development strategy. The upgrading of infrastructure contributes significantly to increasing future economic competitiveness and improving the quality of life of an increasing number of urban inhabitants, as they migrate away from rural areas. The South African government has chosen to invest heavily in infrastructure projects as part of the New Growth Path’s stimulatory fiscal package, with infrastructure investment amounting to roughly 8% of GDP for the 2012/2013 fiscal year (DBSA, 2012). Page | 40 Vision The City will provide and maintain a safe, secure, reliable, effective, efficient and fully integrated infrastructure network which meets the needs of individuals and businesses, while simultaneously facilitating local economic development and supporting government strategies and plans.
  41. 41. Infrastructure is a fundamental component of the macroeconomy. It can be termed an ‘economic enabler’, as in isolation it has no potential to create economic benefits. However, when it is integrated and appropriately matched by a complimentary Business environment, it may contribute significantly to economic growth and development. Thus, when a well-managed infrastructure system is available to businesses, it facilitates regional specialisation (and hence growth), due to the efficient and effective allocation of resources, inputs and outputs. There are numerous examples in the empirical literature which support this view: - The United Nations (2002:22) found that the competitiveness of a country’s industrial and commercial sectors is significantly improved by efficient national infrastructure. - Lakshmanan and Anderson (2002:3) found that the productivity of the macroeconomy is enhanced by a productive freight transport sector. - Ravn and Mazzenga (2004:657) found that a reduction in transport costs from 20% to 15% of GDP would be equivalent to a permanent increase in domestic consumption by 1, 5%. It is clear that the success of an infrastructure project is highly dependent upon the capacity of the public institution which is designated with the implementation of the project. Levy (2007) finds that the positive economic impacts of a particular infrastructure project are severely hampered by governance failures (even if the project is carefully planned, implemented and completed without corruption). Kessides (1993) highlights three key findings about the relationship between infrastructure development and economic growth. Firstly, infrastructure investment contributes positively to economic growth by: decreasing the costs of production; stream-lining supply and demand channels; promoting economic diversification and the provision of access to the application of modern technology which in turn will increase returns to labour. Secondly, investment in infrastructure raises the quality of life for citizens through: the creation of amenities; the provision of consumption goods (communication and transport); and contributing to macroeconomic stability. Lastly, infrastructure investment does not create economic potential; rather it develops only when appropriate conditions (such as applicable labour and private capital) exist. The sheer availability of infrastructure is insufficient; the infrastructure must be of the highest quality. Reinikka and Svensson (1999) find that where the infrastructure is of poor quality or is unreliable, new firms will be unlikely to invest, while established firms may be tempted to invest in ‘complementary’ capital (i.e. the provision of their own infrastructure services) as opposed to Page | 41
  42. 42. investment in ‘productive’ capital, which would have the effect of dramatically reducing the rate of return on private investment. The quality and reliability of infrastructure are key concerns for the economic growth and development of Durban. Foreign investors, when seeking an investment destination, place much emphasis on the state of infrastructure in the host country. Infrastructure availability promotes FDI as it reduces operational costs. Khadaroo and Seetanah (2008) find that gains from infrastructure growth and development are correlated with greater accessibility and a reduction in transport costs. Also, the availability of public goods will decrease the cost of doing Business for foreign enterprises, which will contribute to profit maximisation. Erenberg (1993) finds that when infrastructure is not extended to local and multinational enterprises in a timely fashion, the efficiency of these enterprises is reduced as they have to build their own infrastructure, which results in a duplication and wastage of resources. Poor infrastructure can cause transaction costs to increase and thus reduce access to both local and global markets which can reduce FDI inflows into developing countries. The quality of infrastructure has a role to play in export facilitation. Iwanow and Kirkpatrick (2006) find that a 10 percent improvement in infrastructure will contribute to an eight percent improvement in the quantity of exports, in a developing or transitional economy. The capacity for the Municipality to deliver and effectively maintain infrastructure is dependent on its ability to: • collect rates and user-charge revenue and to make an adequate portion available for these purposes; • raise loans in order to fund the capital expenditure; • access other funding from internal or external sources; • successfully plan projects timeously to ensure that government’s Municipal Infrastructure Grant Programme funding is spent within the prescribed timeframes; • accurately forecast future needs and expectations within the local economy. Infrastructure Challenges These have become critical challenges. The limited size of the rates base; loss of revenue resulting from the high percentages of water and electricity that are consumed, or wasted, and not paid for; the cost of borrowing; the socio-political imperatives and increasing urbanisation which strain resources; bureaucratic tendering procedures which cause delays and increased costs and the difficulty of long-term planning within a political regimen of five-year cycles are Page | 42
  43. 43. all factors that militate against the provision of satisfactory infrastructure. The eThekwini Municipality is known to show a good deal more responsibility in terms of its management of assets than many municipalities, but when budgets require pruning, it is inevitable that allocations for maintenance will suffer. The City has also experienced unprecedented development in its more peripheral areas. The costs of delivering bulk services and other infrastructural assets such as roads so far from the City centre are inhibitive and have given rise to controversy as to who should bear the costs. Levies, development charges and mobility tariffs, all of which have been under discussion, are unpopular solutions as far as the Business community is concerned. A study commissioned by the South African Property Owners Association (SAPOA) finds that eThekwini’s unique development surcharge makes it the most expensive Municipality in which to develop industrial, commercial, retail and residential properties (Urban Econ, 2012). This surcharge thus renders Durban uncompetitive as a development destination4 . Indeed, many feel that the City is already a more expensive investment venue than competing metropolitans. The challenges mentioned will not get easier over time. Fundamentally, when a balance is being sought between socio-economic imperatives and the need for infrastructure development, the leveraging of economic growth and thus enhanced municipal revenue, needs to be considered. In the case of large developments, the outlay of capital which will be received later through property rates is required to stimulate such developments. Account also needs to be taken of the necessity sometimes for developers to bear the cost of infrastructural developments themselves. They cannot afford delays when there are financial commitments that must be met. In these instances, the Municipality should recognise the contribution to the City’s infrastructure base and provide retrospective concessions. Thus, constructive solutions will need to be found sooner rather than later, and the solution, it is believed, lies in public/private partnership. In a smart City, a framework for such partnership will be developed after intensive discussion. It is believed that there are unexplored options as to how such collaborations may be forged. A framework will obviate the necessity for each development project to be approached in an ad hoc fashion and will also avoid the unhappy situation where the Municipality imposes charges which, although considered necessary in 4 If the development surcharge were to be removed, eThekwini’s retail developer costs would be brought in-line with Cape Town and would also be cheaper than those in KwaDukuza (whose developer cost tariff structure still excludes the cost of water connection). A removal of eThekwini’s development surcharge would also see eThekwini becoming the lowest cost major metro for commercial property development (Urban Econ, 2012). Page | 43
  44. 44. terms of the requirements of the fiscus, inhibit development and the attraction of property development. Development Champion In the context of development, and often associated with infrastructural considerations, it is the slow-moving public sector that determines the pace. An acceptable and constructive framework will ensure that delays are avoided as much as possible. Delays are unnecessarily costly and cause considerable frustration among developers, not only for the reason that their costs rise. In many ways, infrastructure developments become obstructed by procedures. The identification of a “champion”, a person with the authority to keep things moving, is advisable. Departmentalism within the Municipality needs to be over-ridden by the facilitation of a senior official who has the authority to get things done. Roads In respect of roads, the relationship between City and province needs attention. In some cases, the transfer of “provincial” roads to the Municipality would be welcomed. Where delays result from bureaucratic procedure, the Municipality in common with its sister metropolitan cities (all of whom suffer from the same malady) will lobby for regulatory changes. The Municipal Finance Management Act need not be cast in stone; the national government, and the Treasury in particular, must be prepared to sacrifice some aspects of a control mentality in recognition of practicality, and financial good sense, on the ground. The key to economic progress and job creation in Durban is ensuring that there is a sound balance between the provision of adequate infrastructure to rural and other disadvantaged communities, on the one hand, and the extension of infrastructure to facilitate, and even encourage, economic development on the other. Financial constraints imply all too often that it is a case of “either, or”, but this leads to compromise and the real satisfaction of neither. The City will focus on projects which will yield the greatest economic return; for it is only through the growth of the rates base and the number of paying service consumers that the Municipality will improve its financial circumstances. “Growth”, and not “increase”, must be the watchword. Dube Tradeport Among the particular focus areas in the future must be the precinct of the Dube Trade Port and the King Shaka International Airport. Hitherto, these have been recognised as provincial rather than municipal initiatives, but they lie within the City and the participation of the City in their development is essential. In particular, the proposed Aerotropolis must be a keynote Page | 44

×