1

ACCELERATING PRIVATE SECTOR-LED GROWTH AT THE

LOCAL LEVEL: CAPE TOWN AND MADIBENG

Dr Karin Badenhorst

Paper prepared for the Centre for Development and Enterprise’s Youth Unemployment Project

August 2017

2

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................................ 5

Scope of the study ............................................................................................................................... 5

Research process ................................................................................................................................. 5

Conclusive findings and recommendations ........................................................................................ 5

INTRODUCTION ..................................................................................................................................... 10

Background to the study ................................................................................................................... 10

Context .............................................................................................................................................. 10

Scope of the study ............................................................................................................................. 11

The research process ......................................................................................................................... 11

Stakeholder perceptions ................................................................................................................ 11

Inconclusive findings and recommendations ................................................................................. 12

Challenges of the research process ................................................................................................... 12

Poor response rate ......................................................................................................................... 12

Limiting research approach ........................................................................................................... 13

Contrast of the two regions researched ........................................................................................ 14

KEY FINDINGS ........................................................................................................................................ 14

MADIBENG ............................................................................................................................................ 15

Overview ........................................................................................................................................... 15

Madibeng in the context of the North West Provincial Government ............................................ 15

FEED initiative: Establishment of Chambers of Commerce VTSD program ................................... 19

Socio-economic overview ............................................................................................................... 20

Economic overview ........................................................................................................................ 21

Municipal status ................................................................................................................................ 22

Findings from structured questionnaires .......................................................................................... 23

Biggest constraints on competitiveness of businesses in Madibeng: Mining and Automotive

Support Industries .......................................................................................................................... 25

Agriculture, Agri-support and Agri-processing Industries ............................................................. 27

Prospects for business growth ....................................................................................................... 27

Role of national and provincial government and government agencies in the regional context .. 28

Organised business ........................................................................................................................ 29

Provincial Institutional barriers...................................................................................................... 29

Institutional barriers ...................................................................................................................... 29

3

Municipal service barriers .............................................................................................................. 30

Business Enablers ........................................................................................................................... 30

National and provincial government’s key role in enabling growth .............................................. 31

Local government’s key role in enabling growth ........................................................................... 32

Private-public business interface ................................................................................................... 33

Local Government Equitable Share Formula ................................................................................. 33

Organisational and institutional reforms ...................................................................................... 34

Youth skills development and job creation .................................................................................... 35

CAPE TOWN .......................................................................................................................................... 38

Overview ........................................................................................................................................... 38

Economic overview ........................................................................................................................... 38

Western cape economy..................................................................................................................... 41

City of Cape Town metropolitan municipality................................................................................... 42

Municipal socio-economic analysis ................................................................................................... 45

Findings from structured questionnaires .......................................................................................... 47

Business sector growth .................................................................................................................. 49

National government role .............................................................................................................. 49

Provincial and local government roles ........................................................................................... 50

Institutional barriers ...................................................................................................................... 51

Local Government Equitable Share formula .................................................................................. 52

Key LED projects / programmes ..................................................................................................... 52

Municipal regulatory constraints ................................................................................................... 53

Provincial regulatory constraints ................................................................................................... 53

Institutional reforms ...................................................................................................................... 53

Youth job creation and skills development .................................................................................... 54

Business enablers ........................................................................................................................... 54

Engagement with business ............................................................................................................ 54

Private-public Interfaces ................................................................................................................ 55

Planning districts ........................................................................................................................... 56

Economic Resources and publications ........................................................................................... 56

Local Government in the context of National Government ........................................................... 57

Local Government in the context of Provincial Government ......................................................... 58

Small Medium and Micro-sized Enterprise (SMME) best practice as an enabler of growth ......... 61

4

Perspectives from other key stakeholder groups / role players in Cape Town .............................. 64

Government Agencies .................................................................................................................... 66

NGOs and NPCs .............................................................................................................................. 67

Business Schools ............................................................................................................................ 67

Organised Business in Cape Town ................................................................................................. 68

Remaining challenges .................................................................................................................... 70

Consolidated opportunities ............................................................................................................... 71

CONCLUSIVE RECOMMENDATIONS ...................................................................................................... 76

Transformational change enablers as catalytic development opportunities for these two cities ... 76

One: Fostering ................................................................................................................................ 76

Two: Youth Empowerment ............................................................................................................ 77

Three: Participatory Growth Enablers ........................................................................................... 77

Four: Value Chains ......................................................................................................................... 78

Five: Transformational Maturity Model ........................................................................................ 78

Six: New Economic Pathways ........................................................................................................ 78

Seven: Clustering ............................................................................................................................ 79

Eight: Scalability of Success ........................................................................................................... 79

Nine: See Opportunities ................................................................................................................. 79

Ten: ICT Enablement ...................................................................................................................... 80

Eleven: The Bigger Pie .................................................................................................................... 80

Twelve: Incubator to Full Flght ...................................................................................................... 81

CONCLUDING REMARKS ....................................................................................................................... 81

5

EXECUTIVE SUMMARY

Scope of the study

The study targets two key outcomes: Accelerating Growth, and Reforming the Business Environment - more particularly focusing on the role of the public sector in Accelerating Growth, and facilitating and enabling the Reforming of the Business Environment. The study explores both regulatory and extra-regulatory constraints and opportunities in doing business in two target areas namely Cape Town (large metro) and Madibeng (small to medium sized town). Institutional and governance challenges that might constrain growth are explored, as well as systemic opportunities that might accelerate growth and enable job creation at the local level. More specifically the study explores what should/could Local Government do to enable and stimulate growth and their areas. It further addresses the role of government in business institutional and business environment institutional reform. The output of this study could potentially be used to derive at a policy report on how to address youth unemployment at scale in South Africa, and the drafting of a guide for local actors and local interests. “The recipe for economic growth is a simple one: governments need to get out of the way of their people. Arbitrary policies that raise the risks and reduce the expected returns from any venture or career path can fatally undermine the potential of a market system. The African continent today still provides too many cases of abusive, repressive and sometimes just incompetent leadership…”1 Research process

Key stakeholders in each of the two target areas were identified and their input and perceptions sought through the distribution of structured questionnaires and requests for interviews. This was supplemented by desktop research of supporting and relevant views and perceptions available in the public domain. Conclusive findings and recommendations Key constraints to growth, as well as key sources of growth, growth patterns and growth enablers have been explored in this study, and conclusive findings and recommendations made. “Billions of people have by now crossed the absolute poverty threshold, the equivalent of about two dollars a day of current purchasing power. Billions will do so over the next 50 years if human endeavour and enterprise continues to be encouraged, as it has been, more or less, over the past half-century….. In the world at large, 702 million people fall below the poverty line in 2015…..The percentage of the world’s population falling below the poverty line was 37 per cent in 1990 and has fallen to 9.6 per cent in 2015. This represents enormous economic progress.”2

1 Prof Brian Kantor, Get South Africa Growing, 2017 2 ibid

6

In many developing nations in the world, countries less developed than South Africa much progress has been made around more inclusive economic growth and inclusive job creation, through the development and application of agricultural value chains, linking rural communities to both urban and international markets. However, in this country, we are stifled by current political stagnation, influencing even our young job seekers, reminding them of the imbalances of the past, rather than focusing on the opportunities that lie in the new economic spaces of the future. “South Africans are often reminded that incomes in this country are the most unequally distributed in the world. We are as often told about the grave issues of poverty and inequality that confront the economy – as if inequality in South Africa causes poverty. But does it? And might not less inequality (engineered by politics to tax the rich and give more to the poor) lead to slower growth over the longer term, to the disadvantage of the poorest in the society”3 For a long time, policy makers in this country have been settling for responses that administer poverty rather than steadily ending it. This is evident in the social grant system, the state overemploying people, the creation of temporary jobs through, for example, the Extended Public Works Program (EPWP), and a too great a focus on subsistence activities, rather than collective economic growth potential to benefit not only individuals but the broader economy. Adam Smith, in the first major modern work on economics, The Wealth of the Nations (1776), explained ‘why division of labor is limited by the extent of the market’ and posited why both more specialization and more trade would advance economic welfare. His intellectual achievement with The Wealth of the Nations was all the more remarkable for having been convinced in what today would be described as an undeveloped economy, Scotland, where much of the population was the still engaged in largely subsistence activities on the land.”4 Interestingly this is evident in some provinces such as the North West Province, more than others. The South African economy is simply not creating enough jobs for the young people that have left school or have graduated, and the situation is getting worse. Unemployment amongst people younger than 35 years of age has increased from 38,6 per cent during the first quarter of 2017, 1,6 per cent higher than the end of 2016. Much of this is due to many more people (young people) joining the work force.5 An accelerated shift should take place from pure social dependence to opportunities for growth and development, where the portion of the community that are dependent on social grants and support, are only the really vulnerable, transforming the ‘bottom of the pyramid’ triangle to a ‘diamond’ following the creation of a stronger self-sustaining ‘middle class’. There has been a shift in jobs amongst different industries, with a shift away from Agriculture, Mining and Community Services, to Construction, Manufacturing, Utility Services, Trade, Transport, and Financial Services – this is more evident in the Western Cape, which is showing an increase in all sectors producing goods for the export market. These patterns cannot only be attributed to the drought the country experienced over the last couple of years, but due to a changing world economy, as well as the appetite for the type of work that young people are interested in and migrating towards.

3 Prof Brian Kantor, Get South Africa Growing, 2017 4 Ibid 5 Die Burger, 2 June 2017

7

With Cape Town being an export hub, services supporting export subsequently shows grow in this space. Focused industrial development zones, such as the GreenCape initiatives in Cape Town, indicates exciting new economic pathways through the industries of the future, which are focused more on sustainability and growth, away from declining industries. Shifts within existing industry sectors are taking place, for example, there is a shift away from traditional source focused industries such as mining and basic agri-culture, to include an increasing focus on extending the agricultural value chains to include agri-processing, value adding product development, greater rural – urban connect, exploration and creation of new export markets, and the support services to enable this. Innovation of these processes and new supporting technologies to enable these create new economic pathways for economic growth and job creation. In both Cape Town (Agriculture) and Madibeng (Agriculture and Mining), these opportunities are rife for development. Opportunity lies in turning challenges and risks (such as a decline in unsustainable energy and other resources) into opportunities through focused innovation. The discussions currently taking place between the Mayor of Cape Town and big business in Cape Town to source support and investment for the development of desalination of sea water if one such example. Current negotiations taking place between the Alan Winde (MEC of Economic Opportunities of the Western Cape), Donald Grant (MEC of Transport and Public Works), with Virgin Trains to help resolve the aggravating metro rail challenges Cape Town has been experiencing, is another examples of challenges and risks turned into opportunities – new economic pathways for economic growth and job creation. “The City of Cape Town, possible the country’s best-run municipality, has the balance sheet and hopefully the competence to raise abundant funds from both private lenders and the central government for expanding the infrastructure of land, buildings and roads, investments that will make every economic sense for the City itself. And it would help provide access to jobs and meaningfully help relieve national poverty as young work-seekers in particular continue to migrate in large numbers to Cape Town, as they to do Gauteng and Durban.”6 The Western Cape’s growth over the past five years currently matches that of Gauteng, South Africa’s economic powerhouse, and remains above the national average. The Western Cape maintains the lowest unemployment rate, with the smallest number of discouraged work seekers. The construction sector is booming in this region, with building plans submitted increasing by 27,3 per cent in 2016-17, a nearly R1bn increase in value. The province’s (and particularly Cape Town’s) property market the best performing in the country. The Cape is also leading the way in new technology, with more than 60 per cent of the country’s ICT start-ups located in the region. The City and the region is reaching a place where its push for growth and job creation is giving the currently depressed broader South African economy a boost.7 However, there are still many lingering areas of non-performance, such as the broader problem of the serious pollution of our land, rivers and oceans, and poor waste management is however one of the greater socio-ecological challenges of our nation, but, again, a significant economic opportunity for job creation through the innovation or more preventative and sustainable solutions. This is one of the bigger challenges that the City of Cape Town is on par with the other provinces in the country, in terms of not having exploited the SEE (socio-economic-ecological) opportunities that lie therein.

6 Prof Brian Kantor, Get South Africa Growing, 2017 7 Business Day, 14 June 2017

8

Sharing of successful recipes, not only between cities and provinces, but also from other developing nations, is a ‘leap-frog’ pathway to more rapid growth and job creation at the local level. The concept of fostering between cities and their smaller counterparts, is an opportunity not to be missed because of political selfishness and pride. We need fundamental reform in this country – a new set of sound economic guiding principles, coupled with the right attitudes, bold policy choices, determined leaders and competent managers. “For South Africa to grow faster, the innovative power of business must be released and encouraged rather than discouraged by government interventions. Business should be treated with respect rather than the hostility that seems to be the inclination of a bureaucracy that lacks appreciation of essential bourgeois virtues.”8 The tragedy of a perception of taking away the assets and capital from the few wealthiest white entrepreneurs, to share amongst the poorest, is that this would be a once-off “destruction of the current pie” that currently enables employment for thousands of South Africans. Rather than destroying so-called wealthy enterprises, which create jobs for a multitude of people, and help to keep the economy ticking, the poor should be built up – to start building the wealthy enterprises of the future. A bigger more inclusive pie should be created – a basic principle of economics all citizens need to be educated on. “…Differences in incomes are to the advantage of the poor when high incomes are the reward earned from owning and managing a successful enterprise, practicing a profession or even running a successful not-for-profit organization that does excellent work for society and might also pay excellent employment benefits. There firms, of one kind or another, deliver valued goods and services to willing buyers and jobs for willing workers on mutually acceptable terms and turn a profit for their owners”.9 A profit, which of course can be ploughed back into the growth of the business and greater job creation and employment. “Success comes by adapting a market-let order for the economy, and by placing an increasing reliance on releasing the enterprising power of their people, properly encouraged, respected and protected by a predictable rule of law, and less threatened by the arbitrary acts of powerful rulers pursuing their own narrow economic interests at the expense of the common good”.10 Poor education, especially focused on the employment opportunity inherent in new economies, poor policy formulation, cadre-employment, over-regulation, poor governance, high minimum wages, and uncompetitive labor regulating intrusion, stifle rather than contribute to the expansion of economic and utilization of job creation opportunities. With the right kind of mindset, support and enabling environment, each and every person has the opportunity to build a successful enterprise and thereby achieve unlimited income potential. “How the rising economic tide lifts all the boats. The competitive process through which scarce resources are continuously allocated to more productive uses leads to higher incomes for their

8 Prof Brian Kantor, Get South Africa Growing, 2017 9 Ibid 10 ibid

9

owners, but also enhances the income of the other in the community, as well as the employment benefits of the least skilled…”11 We need to balance our valuable resources for optimal sustainable growth. Much of the growth potential lies in the rural-urban connect and urban transformation, including a broader entrepreneurial eco-system, including the involvement and collaboration of the public sector, the private sector, citizens and learning institutions. The Integrated Urban Development Framework’s nine policy levers addressed a number of cross-cutting issues that require participation of a number of stakeholders across all spheres and sectors of government, the private sector, non-profit organisations, local community and business organisations and sector interest groups. We need bold leaders in government and business to drive a greater focus on enabling the youth job creation agenda, which are not only lip service, window dressing, or the “correct political statement to make”. We need to drive innovative change, systemic rather than linearly focused sector development based on inclusive value creation along an extended value chain, and identification of catalytic priorities. Collaborative platforms for discussion and the drafting of academic integrative models are but two steps towards getting closer to addressing our growth challenges in this country. We need more particular focus on the finding, development, and implementation of new economic pathways towards and through the new economies of the future – this is where a real, significant and sustainable change towards greater job creation will take place.

11 ibid

10

INTRODUCTION Background to the study One of South Africa’s most pressing challenges is the extremely high level of youth unemployment. The Centre for Development and Enterprise (CDE) has, over many years, undertaken extensive research exploring both the causes of and the potential cures for this challenge. This includes the research and associated series of reports produced as part of the CDE Growth Agenda, addressing priorities for mass employment and inclusion. To take this work forward, CDE has been running a series of municipal level forums in 20 municipalities across South Africa to reinvigorate dialogue on this issue for the purpose of generating creative and innovative responses that come from within the communities worst affected. In the context of the above initiatives, and to supplement the forums, CDE commissioned further research to obtain the most up to date and comprehensive information on the available policy options. This report summarises the findings and recommendations of a more specific study identifying challenges and opportunities to accelerating local growth in the municipalities of Cape Town and Madibeng (Brits). The purpose of the research is to influence both the ongoing municipal level conversations at the heart of the project and the published recommendations that will be produced at the end of the project. This has the twin benefit of helping to promote more effective local action within current institutional and policy constraints and a platform for collective action to prompt reform of those constraints. The Growth Agenda series published in April 2016, consist of seven reports, namely: Summary overview: Insights and key recommendations, Jobs, Accelerating inclusive growth, Cities, Skills, Business and Government, and a specialized report focused on an export processing zone for the Nelson Mandela Bay Metro. These reports create a good context for the commissioned research summarized in this report. Context

From on-going research work CDE is of the view that a clear constraint to job creation and increased employment levels in South Africa is the lack of economic growth. Without sustained levels of growth in the region of 5% our economy will not create the jobs required to make a significant impact on the level of employment. The IMF has consistently downgraded South Africa’s growth forecasts and the economy was projected to grow at a rate of 0.1% for 2016, barely above zero growth and not nearly high enough to tackle the scourge of unemployment. From research CDE concluded that, since the government is fiscally constrained, any new impetus for growth must come from the private sector.

“For South Africa to grow faster, the innovative power of business must be released and encouraged

rather than discouraged by government interventions. Business should be treated with respect rather

than the hostility that seems to be the inclination of a bureaucracy that lacks appreciation of essential

bourgeois virtues. “

Prof Brian Kantor, Get South Africa Growing, Jonathan Ball Publishers, 2017

11

This has been the key driver for the commissioned research focused on accelerating private sector-led growth at the local level, as summarized in this report. Scope of the study

The study targets two key outcomes: Accelerating Growth, and Reforming the Business Environment - more particularly focusing on the role of the public sector in Accelerating Growth, and facilitating and enabling the Reforming of the Business Environment. The study explores both regulatory and extra-regulatory constraints and opportunities in doing business in two target areas namely Cape Town (large metro) and Madibeng (small to medium sized town). Institutional and governance challenges that might constrain growth are explored, as well as systemic opportunities that might accelerate growth and enable job creation at the local level. More specifically the study explores what should / could Local Government do to enable and stimulate growth and their areas. It further addresses the role of government in business institutional and business environment institutional reform. The output of this study will be used to derive at a policy report on how to address youth unemployment at scale in South Africa, and the drafting of a guide for local actors and local interests. The research process

Stakeholder perceptions The research has been conducted through a combination of stakeholder interviews and desktop research. Key stakeholder groups in each of Cape Town and Madibeng were targeted for their perceptions and views, making use of structured questionnaires constituting a combination of semi-quantitative and qualitative questions. Stakeholder groups approached in Madibeng included Government, Government Agencies, Business (across 4 key business sectors in this region), Organised Business, and Business Enablers. At the outset of this study, the 5 key business sectors identified in Madibeng are:

1. Tourism and associated industries 2. Agriculture and associated industries 3. Retail 4. Automotive support industries 5. Mining support industries, and 6. More recently, renewable energy support industries.

For Cape Town, key stakeholder groups approached included Government, Government Agencies, Business (across 17 key business sectors in this region), Organised Business (representing key business sectors), Business Enablers and Academia. At the outset of this study, the key business sectors identified in Cape Town are:

1. Financial services (including Banking, Insurance)

12

2. Call centers and Business Process Outsourcing (BPO) 3. Film 4. Airports 5. Harbour 6. Engineering 7. Boatbuilding 8. Manufacturing 9. Textiles 10. Agriculture 11. Wine 12. Aquaculture 13. Fishing 14. Tourism 15. Conventions 16. Media

Considering the large number of potential interviewees in the target market, a strategy was followed to target individuals and organisations that could provide “umbrella” views, opinions, perceptions and insights, from their particular position in the industry, for example, the Chambers of Commerce, existing growth enablers such as Accelerate Cape Town, and Organised Business Sector leaders. See Annexures A and B for list of stakeholders and questionnaires respectively. Inconclusive findings and recommendations Due to the many constraints experienced during this study, further research and study may need to be undertaken in selected areas. These are highlighted throughout this report under the heading “Recommended further research”. Challenges of the research process Poor response rate A very low response rate was experienced on invitations extended to, especially public officials in municipalities, to meet, or to make themselves available for structured interviews. Close to 150 key stakeholders in Madibeng and Cape Town were identified and invitations to meet, accompanied by questionnaires, were sent out. Very few were returned. Opportunities were created for meetings which were not taken up. As an alternative to structured interviews, questionnaires were sent out, but few returned, although a number of reminders were sent and follow-up phone calls were done. This may be due to an unwillingness to be exposed to the questions posed - it could have been considered a “probe” into current inefficient municipal service provision. This could also be due to the fact that Madibeng Local Municipality has been in a state of flux, having recently gone through a tough change of senior administrative leadership due to identified irregularities, reflected in a very adverse audit report, subsequent investigation into such irregularities, and dismissal of a number of officials. The impact of such irregularities was evident in the lack of compliance with sound financial management, basic service provision, audit and other legislative requirements were evident. Between January and March 2017, all senior posts in the Madibeng Municipality have been advertised, including that of the Municipal Manager, Directors for Infrastructure and Technical

13

Services, Human Settlements and Planning as well as Community Development, and the selection and interview process of the positions of Chief Financial Officer and Directors for Corporate Support Services, Economic Development, Tourism & Agriculture and Public Safety and Facilities Management being underway. All these posts are currently filled by acting officials, including the position of the Municipal Manager. In the case of the City of Cape Town, on the other hand, it might be “research fatigue”, considering the number of related initiatives already in place, others seem to have been effectively launched, showing good results, or a perception that “we have it all in place”, and/or the demand on the time of senior officials. However, the reality is that some basic services and infrastructure provision in many areas of the City are still wanting and are not yet meeting acceptable standards of operation. Early in the research process, a workaround this lack of responses was identified, i.e. to obtain supporting information from other sources, and also to work with related research reports. Also to conduct a number of interviews with representative bodies who could provide an “umbrella view” on institutions. Information on the City the Cape Town is widely available in a number of formats, however, it has been extremely challenging to obtain sufficient information on Madibeng – especially of the nature and sophistication required to write this report. Again, workarounds were the same as with the City of Cape Town, i.e. to obtain “umbrella views” or speak with less prominent individuals, especially young dynamic black entrepreneurs on the ground who are severely hampered by lack of basic services and objective business enablement. An opportunity arose, however, to address the full senior administrative team of Madibeng during the last week of April, as part of a National Treasury risk management workshop, which created an opportunity to gauge more insight into the current challenges at Madibeng, and to get to know the key role players. This provided invaluable input into this research process. However, the post of the senior official responsible for Local Economic Development had not been filled at the time of this workshop, and therefore particular detailed views could not be obtained. The acting municipal manager and executive mayor also were not responsive to requests to meet or to provide their perspectives in this regard. Once the position is filled, hopefully this portfolio will show significant progress. Also, one cannot underestimate the tremendous pressure on South African public leaders and key business stakeholders to complex socio-political, socio-economic, environmental and developmental pressures, especially considering where we find ourselves in an unsettling and changing political landscape. Limiting research approach The initial research approach was to derive clear trends from a representative sample of quantitative and semi-quantitative questions posed, combined with qualitative open-ended perspectives on particular discussion topics. However, due to the low number of questionnaires returned, it was not possible to provide a comprehensive and representative quantitative view. Some graphs have been drafted and included in this report under the sections FINDINGS FROM STRUCTURED QUESTIONNAIRES for Madibeng and Cape Town respectively. A more qualitative approach therefor was applied.

14

Youth unemployment and slow economic growth are not only South African phenomena, but are world-wide challenges. Fortunately, much research in this space is currently being done, both locally and internationally, which assisted the drafting of this research report. However, it did extend the time required to do the research. Contrast of the two regions researched The two municipal areas researched were vastly different, not only in terms of mere size and geographical stretch, but also from a political, economic, social, cultural, and climatic perspective. This created challenges to the research process, but at the same time opportunities which emanated from the research – some of which will be discussed further in this report. In Cape Town, the challenge was to decide which institutions and leaders to include in the study to obtain adequately representative views and perspectives, considering the wide number of institutions, industries, initiatives, and departments. Organised business sector organisations have a good overview of the challenges and opportunities for growth in particular sectors. In Madibeng, however, there are few representative business sector organisations dedicated to the municipal area under review. It was important to apply a common research process for both Cape Town and Madibeng, so as to be able to compare findings. Also for the benefit of cross-pollination of opportunities, and to align national regulatory and non-regulatory initiatives for execution at local level. However, considering the greatly diverse levels of maturity of government institutions and current enablers we find in South Africa, it is also important to find solutions to address growth and youth employment challenges in a diversity of contexts. KEY FINDINGS The output (key findings and recommendations) from this study is summarized in the following format:

1. For each of the two towns, the following are discussed:

the context

findings from structured questionnaires

strengths and opportunities

specific recommendations 2. Conclusive combined recommendations are made at the end of the report.

Contextual overview Brief description of the socio-economic-ecological contexts of the two municipal areas, namely the City of Cape Town and the Madibeng Local Municipality. Findings from structured questionnaires The ranking of a number of perception survey questions are graphically portrayed. Challenges and weaknesses of each municipal area, based on perceptions and views derived from communication with a wide range of stakeholders of economic growth and job creation in these two municipal areas.

15

Strengths and opportunities Exploration of strengths and opportunities of each municipal area, by considering localized, regional and/or geographic advantages, and current initiatives in the two regions, and the opportunities this could pose for accelerated economic growth and job creation. Specific recommendations Specific recommendations to particular challenges and opportunities where possible to make them, alternatively an indication of further research / study opportunities, where the information obtained has been incomplete and findings inconclusive. These will be highlighted after the particular challenge and/or opportunity discussion. Conclusive recommendations A number of conclusive priority catalytic drivers, levers and enablers, to enable economic growth and development and job creation in these two and other towns with similar challenges and opportunities, taking into consideration all the findings of the research conducted. MADIBENG Overview Madibeng in the context of the North West Provincial Government The assets of the North West Province are many and varied. It has great mineral wealth, sophisticated commercial agriculture, and a strong manufacturing industry. The province, and more specifically Madibeng, is strategically located very close to South Africa’s biggest markets, with major roads linking trade on the east-west axis, also linking these markets with bordering country Botswana. Mining contributes 31% of the region’s gross domestic product, with enormous mineral reserves that still lie beneath the ground. Platinum group metals predominate, but there are significant deposits of gold, uranium, diamonds, copper, vanadium, fluorspar and nickel in the region. Brits is one of three towns in the North West Province that generates large scale storage and logistics operations for the agricultural sector. Brits is one of four major manufacturing towns in the Province, focusing predominantly on automotive components, which is logistically in close proximity to the automotive manufacturing hub in Rosslyn (Pretoria). The North West Province is considered the Platinum Province, or South Africa’s “Texas” with its big beef herds. While the North West province enjoys much of the advantages of a first economy, especially in terms of its agricultural and mineral assets processing, much of the population is still rural and remains unconnected to economic opportunity. One of the advantages of Madibeng is its central location in the North West Province, with Pretoria, Johannesburg, Rustenburg and Krugersdorp as bordering neighbours. As the neighbouring towns are easily accessible through road networks, residents are not confined to employment in the Madibeng jurisdiction alone, but can easily commute to workplaces in the cities and other towns.

16

Madibeng can also be reached by train and has an airport for light aircrafts. The National and soon to be International Lanseria Airport if situated a mere 40 kilometers from Brits. Much of the planning of the provincial government, development agencies and financing bodies is aimed at finding ways of helping small businesses thrive in poorer communities. Some of the institutions involved in this process are the Small Enterprise Development Agency (seda), the Industrial Development Council (IDC) and the development agency of the provincial government, the North West Development Agency (NWDA). Local economic development support include financial support for small, medium and micro-enterprises (SMMEs); building infrastructure in rural areas; findings ways of expanding the value chain in mining and in agriculture, and directing tourists to new sites which will benefit communities. The possibility also exist that a totally new sector, renewable energy, will help to transform the lives of previously excluded communities. There is much scope for partnerships in this industry, and specifically scope for the development of the manufacturing sector to support the renewable energy sector. A start has been made to attract solar panel manufacturing to the Platinum Special Economy Zone in the Bojanala District Municipality, of which Madibeng forms part. The North West education sector covers high-level research to training for technicians and artisans, including three large TVET colleges, with one of the Orbit TVET College based in Brits. The Taung Agricultural College in Hartbeespoort who received R13.4millon from a Danish company in 2015, has recently been accredited by the Council of Higher Education (CHE) to offer the NQF Level 6 Diploma in Agriculture specializing in irrigation technology. The relative close proximity of the North West University in Thlokwe (Potchefstroom) and the University of Pretoria in Tswane, are a great benefit to the Madibeng region. The Pembury Lifestyle Group opened a private school, PLG Hartbeespoort Academy, in 2016, and is looking to raise capital on the JSE for further expansion in the region. The provincial government of the North West has announced that one of its five major priorities will be to boost economic development in villages, townships and small “dorpies” (VTSDs). In every sector where government influence can be brought to bear, consideration must be given to how policy will improve lives in VTSD, specifically to boost economic growth in the North West’s smaller towns and areas previously neglected. This is one of five major initiatives which form part of the larger “Rebranding, Repositioning and Renewal of Bokone-Bophirima” (North West). The other four are:

ACT (Agriculture, Culture and Tourism)

RHR (reconciliation, healing and renewal)

Setsokotsane (comprehensive and integrated service delivery campaign)

Saamwerk-Saamtrek (call for unity of purpose above race divisions) Village development plans are to be created for each one of 767 in the North West. The work has begun across the province’s municipalities. Creating links with the agicultural economy is likely to be the best way of making a significant impact and the VTSD strategy acknowledges this. Agriculture is one of the strongest sectors in the North

17

West economy, so creating added value along the agricultural value chain is an easier task that creating an entirely new sector. Better linkages must be created between towns and rural areas. Prospective businesses in rural areas (small dorpies) often have no access to finance, find transport costs prohibitive and struggle to connect to the relevant market. Improved infrastructure can be part of the solution, whether it is about providing better roads, or alternatively about the establishment of food markets in smaller areas, and the building of public abattoirs and silos so that small traders and entrepreneurs don’t have to carry heavy cost burdens. The agri-parks scheme that is being implemented in each of the provinces, four districts, including Bojanala (where Madibeng resides), plays into that theme. With proper storage facilities, areas for trading and even some training availability, farmers and traders can both benefit from the centralization of some functions and exposure to a broader market. The same principle applies to clothing and retail. The province wants to see designers given an opportunity to show their garments, even if they themselves don’t have a shop front, either in retail outlets or on some other public platform. Loan funding for small, medium and micro-enterprises is something that several agencies are tasked with, including the Small Enterprise Development Agency (Seda) and the Industrial Development Agency (IDC). Seda has a focus on four sectors: agri-processing, community tourism and protected areas, mining and mineral beneficiation, and trading. All of these are highly relevant to the VTSD strategy of the North West. Madibeng has within its municipal boundaries, many VTSDs and should therefor benefit from this promising initiative. There are also private initiatives, such as the Masisizane Fund (Old Mutual), the Shankuka Black Umbrellas and Anglo American’s Zimele initiative which looks to support small businesses within the mining company’s supply chain. The provincial government has its own development agency, the North West Development Corporation (NWDC), which has been tasked with seeing to it that qualifying co-operatives and SMMEs get loan financing in the R1000 to R1-million bracket. The NWDC can also provide infrastructure (offices or factory space) to help new enterprises. The provincial government has also committed to making it easier to do business with government, in terms of tenders, impact assessment, licensing and doing away with restrictive by-laws. Electrification plans are set to focus more on rural areas and small villages in the years ahead, with 13 422 new households in 104 villages getting access to electricity in 2016. VTSD will also receive priority in terms of the allocation of public housing. Zoning in all villages, townships and small dorpies is to be amended, so that there are clear areas where business can take place. It is hoped that this will do away with the costly re-zoning process that can limit start-up enterprises. A concrete way for the provincial government to boost VTSD is to buy its goods and services, where possible, from VTSD vendors. The aim is to procure 70% of goods and services from such sources in 2016/17. A start was made in 2016, with R2.5billion or 41.6% being spent in VTSD.

18

The tourism sector can also particularly benefit from the VTSD strategy. A focus on cultural tourism would allow for a greater focus on some rural areas that can offer, for example beadwork and pottery, etc. The Madibeng Local Municipality lies within the Bojanala Platinum District between Rustenburg to the west and Pretoria in the Gauteng province directly to the east. Madibeng consists of several urban and rural areas, villages, farm portions, as well as a proper established and serviced industrial area. The municipal area extends over 3839 square kms on the eastern edge of the North West Province. It lies between the Magaliesberg and the Witwatersrand, 60km from Rustenburg and 50km north of Pretoria. The Magalies and the Crocodile rivers feed the Hartbeespoort Dam, an important source of water for the province and a very popular tourist spot. The main towns are Brits, Hartbeespoort, Marikana and Mooinooi. The geographical accessibility of Madibeng from Tshwane, Gauteng and Rustenburg along the N4 corridor is a major strength and provides a channel into the large markets of the big cities. Madibeng has a strong business chamber (Brits Industrialists Association), who meets with the municipality on a regular basis, which is a strength that should be developed. The Association however are not necessarily inclusive, with a significant divide still in existence between established “white owned” business and emerging black business people. The Industrial Development Corporation (IDC) has two representatives in Madibeng (two so-called “dealmakers”). The IDC tend to focus predominantly on supporting large manufacturing businesses, with the NEF (National Empowerment Fund) focusing on supporting black industrialists. Technical accountants of the IDC are available to conduct a business’ viability and do a due diligence analysis of the market, capacity and capability as well as profitability potential. From 2008, R7.2 billion has been spent on supporting businesses (average R900 million per year). The effectiveness of such spending would however need to be further analysed to determine the extent to which it has contributed to economic development, business growth and job creation, also for the young people of the region. There are young leaders in the community that are driving individual ad hoc efforts and initiatives, trying to make a broader difference, but these are few and far between, as they really require incredible strength, commitment and endurance under the current poorly supported by government, business environment. If done in a more collaborative manner, such singular initiatives can be done much more effectively, especially with the right kind of financial, administrative, resource and logistical support that are available from the various institutional entities and other established role players. Industrial development and Primary Agricultural production seem to be the key economic activities in Madibeng. Although Guest Houses and Tourism elements are prevalent in the area, there are greater opportunities in the neighbouring town of Rustenburg that should be identified and linked for connections, partnerships, value addition, joint promotion with common purpose and concerted efforts towards a common benefit. Primary Agricultural producers may form secondary cooperatives for common marketing and discounted procurement. Currently individuals may not meet the criteria of a prospective buyer however as part of a group with a common commodity it may assist them to meet the required

19

criteria. Forward contracts for such arrangements would be beneficial for sustainability of primary producers. It should also be noted that removal of discriminatory relations in the area may improve growth particularly considering the competing vegetable market available in Botswana. Value addition is another area that may be considered – this would be particularly linked to an innovative approach that would provide and serve the needs of the target group at a good price and being at the right place where they would be visible. The sectors, whether in primary or secondary production, may be linked to SADEC countries in consideration of neighbouring country’s needs. Another approach would relate to socio-economic benefits. Improving road infrastructure between the Town and it neighbouring villages would promote the frequency and ease of trips between them without the concern of poorly maintained roads. Transport should be easily accessible at convenient times at reasonable costs. The manufacturing sector in the North West Province is fairly well-diversified accounting for 5% of the Province’s Gross Domestic Product – Regional (GDP-R) and 5.3% of all employment opportunities in 2010. Averaging an annual growth rate of 5.9% (2010), the sector is very dependent on the performance of a few sectors in which the North West Province enjoys a competitive advantage. (nwdc.co.za) Given the close proximity to suppliers and lucrative markets in neighbouring Gauteng, manufacturing activity in the North West Province is concentrated in the Eastern district (Brits and Rustenburg). Major industries in this district include metal fabrication, machinery, household appliances, fuel and petroleum, rubber products, transport equipment, automotive components and dimension stone beneficiation. (nwdc.co.za) The greatest opportunities with growth potential in Madibeng lie in:

The automotive supplier sector (60%), considering the closeness to OEMs.

The agricultural /agri-processing sector (20%) Collaboration between role players are important to attract investment into the area in those sectors that have the potential for development. One of the biggest constraints are the lack of both basic infrastructure (water, sanitation and electricity) and development infrastructure (industrial and agricultural development zones) that still prevails. There are a number of Provincial Government initiatives with the objective of being affected at the local level. FEED initiative: Establishment of Chambers of Commerce VTSD program The North West Provincial administration called on all formal and informal business fraternities to participate in establishment of the Chambers of Commerce programme in all the Villages, Townships and Small Dorpies (VTSD) in the month of October 2016. The VTSD Chamber of Commerce programme is aimed at addressing the triple challenges of poverty, unemployment and inequality within Bokone Bophirima Province. The purpose of the VTSD Chamber of Commerce is to:

Mobilize business (formal and informal) across the board including the private sector to contribute to VTSD provincial economic growth.

Facilitate engagements between government and business community on matters relating to economy and enterprise development programmes in the context of the five NWPG concretes namely

20

Agriculture, Culture and Tourism (ACT).

Village, Township and Small dorpies (VTSD).

Reconciliation Healing and Renewal (RHR)

Setsokotsane.

Saamtrek-Saamwerk. These concretes have potential to reshape the course of sustainable development of business in the province and are an essential ingredient for the achievement of the National Development Plan, in the following levels:

Village, township, and small dorpies, Sub –district (Local municipal) Districts Provincial

Of particular relevance for this research is the focus on villages, towns and small dorpies, working at the sub-district (municipal) level. Setsokotsane

Setsokotsane is an all-inclusive radical interventionist program by the Premier working together with all MEC's as well as people in the province to respond to the triple challenges of poverty, unemployment and inequality. South Africa in general and the province of Bokone Bophirima face challenges of unemployment, inequality and poverty. From time to time, communities' complain of slow interventions by government, weak interactions (between communities and elected public representatives) and poor monitoring of projects. Setsokotsane seeks to respond to such challenges which include: Water, Potholes, Lighting in streets and villages, Corruption, Accessibility, Accountability, Housing and Crime. The objectives of Setsokotsane are to

Address the backlog of service delivery Obtain feedback from the public Present government plans to communities Promote partnerships Strengthen intergovernmental relations Strengthen cooperative governance Promote and infuse activism across government

The objectives of Setsokotsane will be achieved through outreach programs, each with its own program name and objectives. The North West Development Corporation (NWDC) Exporter Hub The NWDC offers assistance to emerging and established exporters to expose their products and service to foreign markets, and offers a toolkit as enablers in this regard. To export goods and exhibit products outside of South Africa’s borders, companies need to register as exporters with the South African Revenue Service (SARS). Socio-economic overview Key socio-economic indicators of Madibeng as per Census 2011 and StatsSA Surveys 2014 and 2016, are summarized as follows:

21

Population of 477 381, unemployment percentage between 30% and 37%, with youth unemployment highest at 40.9%.

Average household income is R2400 per month, with 38.7% of the population’s source of income being grants.

59.2% of the population live in formal housing structures, with 39.4% living in informal housing.

32.1% of households with members between 18 and 35 years of age have access to the internet via mobile phones, with 67.9% not having access to the internet.

91.4% of children between the ages of 5 to 17 are in school, where only 27.3% completed matric in 2011. Only 7.4% of people aged 16+ completed higher education.

Only 6.4% of the population use private cars to travel to educational institutions (monthly cost R2448), with 18.2% using taxis (costing R321 per month) or bus (costing R281 per month) with 64% walking.

Economic overview Key business sectors in Madibeng that had shown and may still potentially show the greatest opportunity for growth, include:

Mining, and mining support industries

Automotive support industries

Primary agriculture, agri-processing and agri-support industries

Renewable energy (solar) support industries The diverse economy of Madibeng has mining, manufacturing and tourism as the main employers and contributors to regional gross domestic product. A third of the world’s chrome comes from this area and there is a huge resource of platinum group metals that is mine by several large companies. Madibeng is characterized by diverse economy sectors, i.e. agriculture, mining, manufacturing and tourism as discussed above. Mining is still predominant in Madibeng begin the world’s third largest chrome producer which also includes the richest Platinum Group Metals Reserve (situated on the Merensky Reef). Granite is another valuable mining source. The turf soil is ideal for vegetation and Brits is known for the big variety and quality of fruit and vegetables supplied to, amongst others, the Tshwane Market. Due to the industrial areas, consisting of a wide variety of industries, manufacturing is still viewed as one of the dominant sectors. In Brits there are several automotive component manufacturers, like Bosch, who run a sophisticated plant that makes starters, alternators and braking systems. Bridgestone is a tyre manufacturer at a recently upgraded factory and Giflo Engineering and cable producer, CBI Electric are other companies in this sector in this region. Madibeng Local Municipality straddles the Heritage Route which links the Cradle of Humankind (a World Heritage site in Gauteng) with the Pilanesberg and Madikwe Game Reserves. Hartbeespoortdam is one of the most visited places in South Africa, with a wide range of activities being offered nearby. The diversity and scenic beauty of the Hartbeespoort Dam, the Madibeng tourism hub, and the attractive Magaliesberg mountains, create a globally recognized biosphere reserve. A wide range of adventure tourism activities include an aerial cableway, hot air ballooning and fishing.

22

Municipal status Madibeng is classified as a category B Municipality, functioning through the Executive Mayoral System. The Municipality was recently demarcated into 41 wards and the Municipal Council comprises of 81 Councillors (of which 10 are members of the Mayoral Committee), with a full-time Speaker, Chief Whip and Executive Mayor. During the course of this study the Municipality has been in a state of flux, with the dismissal of a large number of senior officials. A special Council Meeting held in January 2017 resolved to advertise vacant Senior Management posts, including those of Municipal Manager and Directors for Infrastructure and Technical Services, Human Settlements and Planning as well as Community Development. It was indicated that the recruitment, selections and appointment process for these posts should be complete before the end of March according to the resolution. The selection and interview process of positions of Chief Financial Officer and Directors for Corporate Support Services, Economic Development, Tourism & Agriculture and Public Safety and Facilities Management were underway at the time of this study. The municipality has implemented a Performance Management System whereby performance is monitored through conducting performance assessments on a quarterly, mid-year and annual basis. During the course of this study, Madibeng has also been selected as a pilot site for the testing of the newly revised National Treasury Enterprise Risk Management framework and toolkit, and is currently implementing this in a progressive manner aligned with the Performance Management System. Performance audits are conducted by both Internal Auditors and the Auditor General and performance reports are also published in the Annual Report. Madibeng has a recently comprehensively documented Integrated Economic Growth Strategy, based on a study done, which aligns with both the Integrated Development Plan of the municipality and various sectoral strategies. The Integrated Economic Development Strategy constitutes of 4 sub-strategies, namely: Industrial Development Strategy; SMME Development Strategy; Tourism Development Strategy; and Human Resource Development Strategy. The stated purpose of the Integrated Economic Growth Strategy document is to serve as a guiding tool to stimulate the development of the economy within Madibeng. Madibeng also has a Draft Agriculture Strategic Development Plan which provides a framework for support to agricultural co-operatives to guide them towards becoming viable enterprises capable of creating jobs and contributing to the mainstream economy – one of its key objectives being the facilitation of access to markets and agri-processing opportunities. On the service delivery front the Municipality continues to implement service delivery projects such as the paved cluster roads in areas of Oukasie, Mothotlung, Hebron, Kgabalatsane and Letlhabile through the Municipal Infrastructure Grant (MIG). The Municipality has also upgraded provincial

23

gravel roads to tar surfaces in areas like Rasai and Fafung. Water supply infrastructure projects are currently under construction in the eastern parts of the Municipality such as Itsoseng and Klipgat. More homes in the areas of Regorogile, Oskraal and Kgabalatsane have been electrified with the assistance of Eskom. The municipality, in conjunction with the National Water and Sanitation Department has been working around the clock to address the challenge of water supply with the expansion of the Brits Water Purification Plant. The current plant produces 60ML per day while the newly refurbished plant will produce 80 ML per day. Findings from structured questionnaires

Opinions were retrieved from three stakeholder groups in Madibeng, namely Government, Government agencies and Small Business, on between 13 and 20 structured questions, four of which are portrayed in the graphs below.

0 1 2 3 4 5 6 7 8

Internal efficiencies within businesses' control

A poor work ethic / labour disruptions

A poorly skilled workforce

Uncompetitive and unreliable suppliers

An unfavourable environment due to government (alllevels) action/inaction

An unfavourable environment due to factors beyondgovernment control/influence

Other

Currently the biggest constraints on the competitiveness of businesses in Madibeng

24

0 1 2 3 4 5 6 7 8 9 10

Lack of infrastructure

The macro-economic environment

The policy environment

The regulatory environment

The political environment

Stakeholder perceptions

Other (IDC: breaking down silos between fundinginstitutions)

Currently the biggest constraints on the growth of businesses in Madibeng

0 1 2 3 4 5 6 7 8

Provision electricity (directly or through Eskom)

Provision of water

Provision of sanitary services

Efficiency of service billing

Provision of roads and traffic control measures

Provision of town planning and related services(buidling plan approval etc)

Enforcement of municipal by-laws

Other (specify)

The municipality's actions impact on the business community in Madibeng most positively in the following areas:

25

The perspectives discussed below were derived from the CDE workshop on youth unemployment and job creation held in Madibeng on 12 October 2016, and from subsequent one-on-one interviews held in Madibeng and questionnaires returned from individuals in business and government agencies. The perspectives were complemented by desk-top research done on related material. Biggest constraints on competitiveness of businesses in Madibeng: Mining and Automotive Support Industries Most Madibeng business prospects are considered to be mostly stable rather than have a potential for growth, with the key industrial businesses supporting the automotive and mining industries either managing to “plod along”, or to pull out of Madibeng, such as in the two cases of Pasdec Automotive Technologies (PAT) and International Ferro Metals in South Africa (IFMSA).

0 1 2 3 4 5 6 7 8 9

Provision electricity (directly or through Eskom)

Provision of water

Provision of sanitation services

Efficiency of service billing

Provision of roads and traffic control measures

Provision of town planning and related services(buidling plan approval etc)

Enforcement of municipal by-laws

Other (specify)

The municipality's actions impact on the business community in Madibeng most negatively in the following areas:

26

Pasdec Automotive Technologies

Founded in 1969, Pasdec Automotive Technologies (PAT) has been one of South Africa’s leading automotive component manufacturers focused on the design and manufacture of world-class automotive wiring harnesses. The company became part of the Pasdec Group in 2000 and among its clients are Nissan, Mercedes Benz and Toyota. Being the manufacturer of electrical wiring harnesses for Volkswagen Polo, PAT was one of the 26 suppliers that were recently honoured as Volkswagen Group’s best suppliers in 2015.

PAT started manufacturing and supplying electrical wiring harnesses for the Polo models produced at the Volkswagen factory in Uitenhage in October 2012. The company was based in Brits, North West and employs 550 people in three sites. PAT was the second South African company to be honored with the Volkswagen Group Award. Volkswagen Group South Africa and its suppliers have contributed over R1.7 billion in the development of the local parts content.

The mining industry in Madibeng, and subsequently the number of jobs in this industry took a significant knock with PAT moving it automotive component manufacturing plant from Brits to Botswana. The motivation behind this was manifold including the Botswana government’s strong support and its steady economic growth.

It is a really hard message to the South African Government when such a successful business decides to relocate to a neighboring country. Botswana’s government had gone the extra mile to accommodate the relocation process and provide their assistance for its operational requirements, welcomed by Botswana Trade and Industry Minister Vincent Seretse. Apart from the business obtaining the benefit of an efficient enabling environment provided by the stable Botswana government, the people of Botswana in the town of Lobatse are the ones to benefit – through the opportunity for skills development in the automotive industry from at least 500 new jobs that will be created initially.

Botswana’s political and economic stability, lack of exchange controls and low corruption rate poses a welcoming and enabling environment for growth. Botswana also has one of the lowest tax regimes in the region, and its workforce are educated and productive. Substantial financial assistance to potential investors are provided through entities such as the Botswana Development Corporation.

Recommendation for further study:

A comparative study of the enabling environment of Botswana versus the local environment (considering national, provincial and local government and enabling government institutions) would be a valuable study.

International perceptions about investing and doing business with South Africa are currently very poor, aggravated by the fact that the country has a low efficiency caused mainly by a militant and an over regulated labor structure.

In many countries, hiring and firing can be done with less red tape and in the interests of efficiency. So far labor regulations have not removed or reduced poverty and never will. An open market with scope for price competitiveness will increase our status internationally and allow us to compete with all markets and consequently the Rand will strengthen.

International Ferro Metals in South Africa (IFMSA)

International Ferro Metals Limited (IFM or IFL) is an integrated ferrochrome producer with its South African subsidiary International Ferro Metals (SA) (Pty) Limited (“IFMSA”) currently under care and maintenance as a result of the business rescue process. IFL is listed on the London Stock Exchange (LSE: IFL), however as of 26 August 2015 trading in the shares of IFL was suspended on the LSE.

IFL has up until recently produced ferrochrome from chromite ore located in the Bushveld Igneous Complex, one of the world’s richest mineral deposits and largest ferrochrome producing regions in the world. IFL’s Lesedi chromite mine and integrated beneficiation and smelting operations are situated at Buffelsfontein, 100km north‐west of Johannesburg, South Africa. The Company owns the nearby Sky Chrome deposit in which it holds an 80% interest.

Ferrochrome is an essential ingredient in stainless steel production. Unlike nickel, ferrochrome cannot be substituted in stainless steel due to its unique properties.

Since the beginning of the 2015 financial year, the IFL Group has suffered from a downtrend in its operations and profitability that proved more deep‐seated and sustained than expected. It is consistent with the significant decline in global commodity markets generally and despite the stringent cost cutting measures taken by the Company, its financial position deteriorated rapidly. The combination of low ferrochrome prices, rising electricity prices, interruptions to power supply and other costs and losses of ferrochrome production strained its South African subsidiary IFMSA’s liquidity to the point that it became financially distressed.

As a result, on 26 August 2015, the Company announced that IFMSA, which operates the IFL Group's Lesedi mine and ferrochrome smelting operations, was placed under business rescue by the Board of Directors of IFMSA.

The lack of support from a state governed enterprise such as Eskom, with its extremely short term view on planning, was one of the key contributory factors leading to this company’s demise – a company that had a great offset on the international markets for its products, in a world where, although commodity prices were under pressure, the demand for the product increased rather than decreased. This is a sad state of affairs, considering the need for jobs, alleviation of poverty, and how tough it is to bring new investment into this country, and establish a new business with this kind of infrastructure, in a local community where there is a dire need for jobs.

Rather than support the business during the electricity debacle, the opposite happened with inspectors visiting the plant, demanding the closing down of parts of the plant. The impact on production in an already challenged commodity market, contributed to the company’s distress and eventual closure. The result of this is felt on the ground and in the pockets of the most vulnerable workers in the region.

Recommendation for further study:

The role of state owned enterprises in contribution to / creation of a business enabling environment, their acceptance of accountability in the failure what would otherwise be a sound business, the socio-economic impact and the consideration of ‘penalties’ on such resulting socio-economic impact.

27

Numerous large employers have ceased to exist or relocated due to labor and efficiency issues over the last few years – with subsequent downstream socio-economic impact. Recommendation for further study: Original equipment manufacturers such as Mercedes Benz, BMW and Nissan, prefer larger probably more sustainable suppliers rather than creating opportunities for smaller emerging enterprises as might exist in Madibeng, due to extremely high international quality standards. Therefor it might make sense and be an opportunity for a small supplier to specialize in one or two key automotive support products and/or services, and become a niche high quality supplier of just that one or two products of high international standard. This would require open discussion and negotiation with the large automotive manufacturers as well as thorough international market research to identify to most appropriate opportunities for such product development. This would also benefit from the introduction of value chain concepts, to enable the spreading of economic value, working towards at the same economic growth objectives. Clustering will create collective responsibility to service a portion of this market, co-strengthening each other through building redundancy into a cluster, creating stronger platforms for negotiating with large players in the industry who may be concerned about sustainable supply.

Agriculture, Agri-support and Agri-processing Industries

Existing agricultural industries seem stable with no significant new business entering Brits in this space, although these industries should be one of the higher growth industries in the region, with the opportunity for new entrants and job creation being up for the taking. However, many small businesses who are currently barely surviving are struggling to obtain the right level of support from government agencies such as SEDA to take them to increasing levels of sustainability and growth. In the agricultural sector, which employs mostly foreign nationals, efficiency has been improved by mechanical irrigation systems, which unfortunately resulted in job losses, especially for basic agricultural labor, with only the reliable long term skilled workers remaining. The impact if further felt due to work being available on a seasonable basis in this sector. Workers are therefore contracted to harvest vegetables such as onions which are seasonal. The new proposed minimum wage will further reduce efficiency and cause large numbers of employees to lose their jobs especially in the agricultural sector. Prospects for business growth Business owners in the industrial support sector are of the opinion that there are poor prospects for business in Madibeng due to poor infrastructure spend by government, with current infrastructure collapsing. This is aggravated by low macro-economic allocation. Madibeng has a strong business chamber (Brits Industrialists Association), who are willing to meet with local government, and do meet on a regular basis, however meeting attendance is inconsistent, therefore relationship building cannot take place. Meetings are also perceived as talking in circles with little or no resolution. Public-private business interfaces do not exist, with little or no trust in the support of local government to provide processes and procedures for business enablement.

28

Emerging young black business owners in the agriculture sector are of the opinion that Local Economic Development (LED) offices are of little or no help. Disillusionment has set in due to past experience on consultation with extension officers and the Department of Agriculture on funding initiatives, and business proposals submitted on youth skills development initiatives, that led to nothing. Although some initial interests are shown from time to time, there is no feedback and acknowledgement of correspondence from the LED office and no follow through. Funding agencies are more responsive, but the detailed due diligence required by such agencies are not emerging business friendly, as these are extremely detailed and structured and the application process very lengthy. Entrepreneurs seldom have the time and resources to fulfil all the requirements. The views from officials in government agencies are that Madibeng is a small element in the overall scheme and the environment is extremely poor. It was even stated that “the municipality is top heavy with self-indulgence - mayoral cars are purchased that they cannot afford, etc.” There is an unhealthy obsession with small-time, non-value adding projects but a lack of understanding between growth and public infrastructure in particular, which is great cause for concern. The little money available to local government for infrastructure and related projects is spent on unsustainable non-value adding projects such as wood pole borders to the center median of Hendrik Verwoerd drive leading into the town of Madibeng, which has since already fallen into disrepair, rather than, for example, looking after the numerous out-of-order traffic lights which have turned into 4 way stops in town, and proper long term planning and maintenance of the sewerage systems of the town. The latter poses to be especially disastrous in a region dependent on tourism income due to unique attractions such as the Hartbeespoort dam – a huge asset to the environment. The media reporting of the numerous sewerage spills into the dam does more than just environmental damage to the region. Role of national and provincial government and government agencies in the regional context Little information is available about the role of provincial government, i.e. what they do and where the do it. There seems to be visibility on occasion at meetings, but with little visibility in terms of actual difference that is made on a local level in terms of economic development, job creation and growth. It is unfortunate that corruption and collusion (“what is in it for me” mindset) remain key barriers to successful entry into the business or agricultural sector in Madibeng, through the level and type of support of local and provincial institutions in this region. Monitoring of local government’s performance should be done, not only by national and provincial departments, but more importantly by monitoring and oversight entities that are broadly, inclusively and openly representative of the communities they serve (such as MPAC (Municipal Public Accounts Committees) to monitor public spending, and organised business organisations representative of the key business growth sectors). Government agencies, such as SEDA, who are key growth enablers at the local level, are not invited to attend discussions around investment and planning decisions at local government level. When

29

invited, it becomes “a talk shop” and “the meals are the most important event of the day”, with little or no productive actions, decisions and consensus regarding the way forward. Under such circumstances government agency attendees become frustrated and leave early “to lessen their embarrassment”. Meetings to discuss planning investment and planning decisions become an annual “tick-box exercise”, to meet an annual scorecard. Organised business Organized business associations in Madibeng such as the Brits Sakekamer and Brits Industrialists Association seem more focused on older more established businesses, lacking inclusivity of emerging smaller players. New organized business initiatives such as the non-profit North West Business Forum (NWBF), is focused on helping to create, grow and attract knowledge-based businesses in the North West, furthering economic development. Their objective is to represent, protect and promote the collective interests of business in the North West Province in respect of socio-economic matters and provincial growth and development plans and initiatives. The NWBF aims to ensure that organised business plays a constructive role, within the context of the province’s and country’s economic growth, development and transformation goals, in achieving an environment in which businesses of all sizes and all sectors can thrive, expand and be competitive both provincially and nationally. The North West Development Corporation, and other North West Provincial Government departments and institutions, however, seem to launch many seemingly successful initiatives and great programmes, but many of these lack follow through and continuity. Recommendation for further study: The way in which the success of project and programme owners are measured should be reconsidered – for example, performance should not be measured on the number of initiatives launched but on the level and consistency of impact made to beneficiaries. Recommendation for further study: Although the NWBF is more broadly focused on the North West Province, linking and aligning national and provincial objectives, it may be possible for such an organization to create a more localized municipal specific chapter or focus in Madibeng, where the alignment with actual execution on the ground happens. Provincial Institutional barriers At the executive and senior management levels of provincial government there seems to be a lack of knowledge and interpretation of relevant mandates, and regulatory prescripts linked to mandates to enable the development of a strategic plan that would address the national objectives, at the same time not excluding those of the province. Currently national departments, who should focus on mainly on strategy and the development of policy, have larger budgets. Provinces on the other hand have a lesser budget, and where execution needs to take place at ground level, even less funding is allocated, becoming a significant barrier to the achievement of the NDP objectives at ground level. Institutional barriers FEED is of the opinion that if all citizens can appreciate that they receive regulatory prescripts, mandates and priorities from national such that they are executed at the Provincial and Municipal

30

level as an integrated approach, it would be beneficial to service delivery. Relevantly qualified and knowledgeable human resources, and sufficient budget should be channeled to the meeting of basic obligations with the intent to meet common objectives. Reportable targets for the Municipalities and Provincial Governments should respond to and be directly aligned with the national mandate and priorities. This would mean the three spheres of government have a common purpose and goal and are not operating in silos as they do currently. Executive and Senior management should know that it is imperative to know the mandate, relevant regulatory prescripts linked to the mandate, develop a strategic plan that would address the national objective though not excluding those of the province. In the process the executive and the accounting officer should ensure that efforts and bearing fruit and making an impact to the level expected. An induction process would need to instill the above explanation for managers to internalise that which is expected of them. The situation should not be such that a support function determines what the budget should be particularly when they do not know and are not guided by policy imperatives. Getting the right people with the right attitude and capabilities in the right positions would be key to addressing many of the key challenges discussed above. Municipal service barriers Consistent quality water supply is a major constraint to business growth and competitiveness in the municipality of Madibeng. Poor sanitation services, with ad hoc sewerage spills into the Hartbeespoortdam and surrounding rivers are a major inhibiting factor to the Tourism industry. Poor environmental and water management practices of the mining industry further aggravate this dilemma, which together with the dry winter season of this part of the country, constrain basic clear and consistent water supply to all residents, businesses, farmers and visitors. Basic services of sanitation, water and electricity supply and services remain the biggest challenges. Recommendation for further study: The way in which the success of project and programme owners are measured should be reconsidered – for example, performance should not be measured on the number of initiatives launched but on the level and consistency of impact made to beneficiaries. Business Enablers Co-operatives Co-operatives in Madibeng are not seen to be effective by business owners in the agricultural sector. There seems to be a lack of business aptitude and not enough guidance provided by government institutions on the management thereof to make it effective. Agricultural cooperatives are working well in some parts of the country, h0wever, it needs guidance, assistance and business mentoring over a period of incubation. Previously Madibeng also had many Closed Corporations with as many as 20 members, but the success rate has been elusive. Simply promoting and replacing one type of registered entity with another will not necessary bring success.

31

Incubators The concept of incubators does not seem to be not adequately exploited or applied in Madibeng. There does not seem to be a successful track record of Government agencies such as SEDA affecting the kind of support and enablement required to create sustainable businesses in Madibeng. Current service offerings are very basic and more geared towards those who already have some understanding of business practices, whereas the purpose of an incubator is to take a business from “identifying the right kind of seeds and putting the seed in the ground” to a place where “fruit can be harvested for selling onto the best markets in the world where the best demand for the fruit are, and seeds can be harvested for next year’s planting” in a sustainable manner. There are no incubators in Madibeng. Furntrain was in Madibeng some years back, but it turned into “a readiness for employment programme”. The experience with so-called incubators are that they are simply training facilities branded as incubators.” Past experience with incubators indicated that often the incubated entrepreneur / business is not ready to sustain themselves after 3 years. This could be due to the fact that current and past incubator systems tried to put all entrepreneurs / businesses “in the same box”. Both the concepts of an incubator and an accelerator are useful, but they are applicable to different levels of business maturity, and at different stages of their growth curve. Perceptions based on experience in Madibeng indicate that dealing with business accelerators like the IDC can be administratively challenging. The administrative services that are required to qualify for consideration, in itself poses a financial barrier. The experience has been that all round the knowledge base pertaining to markets and marketing is limited – the latter clearly one of the key missing links in establishing successful businesses. Funding institutions Funding institutions available to businesses in Madibeng seem to be working according to their own agendas, which are often across-purposes. The key success drivers of such institutions are not always focused on delivering optimal benefit to the entrepreneur or business owner, but rather aimed at own selfish objectives, applying dubious performance criteria such as “number of businesses funded” rather than “successful business growth enabled”. Development funds for young people with good business acumen and work ethics, but no security, are not available. National and provincial government’s key role in enabling growth FEED, which is a Youth Economic Empowerment Department of the North West Provincial Government, recognizes that business is not necessarily a National Government responsibility but rather an individual’s initiative with the intent to take on risk for reward – to commit resources (time, energy, money and hard work) to make a profit and grow their potential income. FEED representatives recognize that passion, commitment and an urge to succeed at one’s own peril is a key to successful business development and growth. However, government should provide means and the environment to support such initiatives, creating an environment conducive to business growth – of which the most basic requirement, i.e.

32

that of providing even the most basic of services effectively, i.e. suitable road, water and waste infrastructures, are wholly inadequate. National Government may provide support where entrepreneurs fall short through exposure to market opportunities nationally and internationally. At a national level, government should provide a sound macro-economic environment, but the onus is on local government to create a conducive economic environment by providing the necessary resources that would attract investors, including basic services. FEED is of the opinion that Provincial Government should provide suitable incentive schemes that would encourage investors and entrepreneurs to venture into the unknown with the knowledge that they have a backing from the provincial government. Incentives at national government level, tend not to be accessible to entrepreneurs that are in areas distant from Pretoria, as they will not have access to the necessary information of what might be available to them to support their business development. There is a dire need for sound business advisory – a source of guidance and information – a place where entrepreneurs could consult and be informed on how to improve and grow their business. Business success if first and foremost about thorough market analysis, secondly about product development and thirdly about creative marketing approaches. FEED is of the opinion that hand-outs create dependency and greed syndromes without creating the need for making an honest effort – leaving our future entrepreneurs with excessively high expectations, complaining about what they are not “given” without taking responsibility for their own input in the process. Capacity building is also essential, even more so, if supported by incubation and mentoring where necessary. People learn even better when actively participating in a process of production, management and marketing rather than only lecture. Creation of a call in Radio Talk Show on business and its management specifically would provide guidance and facilitate the address of challenges as identified by practitioners. This approach would address the outreach and information dissemination to the relevant audience. FEED promotes the idea of youth business centers, which do not only act as “sales offices” but should rather expose young people to opportunities that combine business and leisure that will attract young people, such as mental games, floor chess boards, internet cafés, burger outlets, gym managed and owned by young people, and hair and beauty salons – creative spaces for creative young minds. Local government’s key role in enabling growth It is the view of business owners in the industrial market sector in Madibeng that the role of local government if to ensure proper governance at the local level – to govern properly through the collection of rates and taxes from ALL residences and businesses – to provide support services in a consistent manner. Furthermore, the role of local government is to be a steward of the opportunities for emerging businesses and young entrepreneurs in Madibeng, within the context of the industry sectors showing growth potential in the region.

33

Local government is in an ideal position to monitor and evaluate business development progress through their Local Economic Development programme, and providing a platform for stakeholder identification, interaction and participation. Skills development programmes are required in Madibeng, especially for rural communities, as well as the introduction of viable market opportunities, through the establishment of fresh produce markets, and developmental support pertaining to formal market penetration. The view of government agencies are that there should be” less talk and more action”. The silos between funding institutions should be broken down, and be aligned to the need of the individual business owners / entrepreneurs as well as the greater economic growth agenda of the region. The needs should be determined with the involvement of local business owners / entrepreneurs. A value chain approach will help the objective of working towards both the greater economic growth agenda, as well as finding the most beneficial and most appropriate value adding opportunities for individual businesses / entrepreneurs. There should be a greater focus on Public Private Partnerships (PPPs), both on a national and local level, where the pull should be driven from the business sector (see Costa Rica case study). Recommendations for further study: The principle of national and international value chains would be a good foundational mechanism to deploy in clarifying the various stakeholders and their respective roles in adding value in an inclusive manner across a product or service value chain, to fully exploit market opportunities. To apply this effectively, collaboration between all enabling entities and alignment of their programmes and initiatives towards common objectives, are key. It is important to understand the strengths that each could play in support of business value chains and opportunities for economic growth and business development. Local government should clean up the towns and industrial areas and make it “sparkle” - attractive industrial parks and towns make for attractive investment destinations. The reality is that investors are exiting Madibeng, and this needs to be countered. Private-public business interface A working group forum is proposed where issues can be tabled and practical solutions identified and the relevant people tasked with resolution. One would hope that talks about a small town regeneration and rehabilitation program discussed in October 2016, would materialize. For this to work, effective governance mechanisms and platforms need to be established where all stakeholders can come together under the guidance of strong leadership teams representative of all industry growth sectors, and both established and emerging businesses. Local Government Equitable Share Formula The basis of the equitable share needs to be questioned. If it is the size of the Municipality then it does not align what the government intends to achieve.

34

” If you want to buy a Ferrari then you must be able to afford it and not be given half a million and be told to buy the Ferrari. The modus operandi that we have as government baffles.” FEED, North West Provincial Government

Questions are asked regarding the funding of municipal IDPs (Integrated Development Plans). If the provincial departments had participated in the determination of the IDP, each department would finance the execution of its own programmes albeit at the municipal level. This would ensure that the IDP is funded all the time while considering that it would be in line with the initial proposal that the IDP would include the three spheres of government. In addition, special programmes for women, youth and people with disability should be adopted as required by national government. Poverty is mostly experienced by the previously disadvantaged due to denial of access to quality education and business opportunities. Concerns are raised that too much funding is allocated to salary costs in government programmes. Also stakeholders interviewed raised the importance of better alignment between the national, provincial and municipal planning, budgeting and implementation. Recommendations for further study: Exploration of the funding allocation pyramid – where is the money going, and how can it be better aligned through better intergovernmental collaboration? Another dilemma raised is trend that when provincial and local governments are governed by different political parties, this seriously aggravates the above dilemma, for example, an ANC provincial government would rather withhold funding to a COPE governed municipality to contribute to its service delivery failure. Organisational and institutional reforms Business owners in the agricultural space in Madibeng suggested all relevant stakeholders should be included in programme formulation. Monitoring bodies should be established, comprising largely of grassroots stakeholders, considering that we need to equalize the triangles above. Government agency representatives in Madibeng stress the question of attitude, saying the government (all levels) need to realize they are there for the people and by the people and not “some big shots who everyone must bow and scrape to”, stressing the need for government to start serving the people and building a better serving municipality. Business owners in the agricultural sector suggest that improvements on channels of communication from local government to the community need to be made. They argue that extensive knowledge of the people can go a long way in affecting long-term positive change, with immediate and long-term socio-economics will make for a successful program or initiative.

National

Provincial

Local Local

Provincial

National

35

Youth skills development and job creation Business owners interviewed in Madibeng are not aware of any youth skills development and job creation initiatives in Madibeng that are facilitated by national, provincial or local government. Lack of experience and skills to create and effectively roll out such programmes seem to be the biggest constraint. Government programmes where they exist are mostly focused on social development, however, SEDA does offer business skills training which includes youth training and development. One of the biggest concerns raised is an attitude of entitlement that exists amongst many young people – an attitude spurred on by examples created in the public space by the appointment of public officials, who are not necessarily adequately qualified, in very senior positions. A perception of many graduates is that they should enter any job at a management level. Young people are disillusioned as they have high expectations. It is important that, not only forums for discussion, but also pro-active and constructive programmes and workshops are created (with the input of young people) where expectations are discussed, frustrations, challenges and ideas are raised and developed. There is a dire need for coordinated focused representative forums for young entrepreneurs, where such matters can be openly debated and young people be exposed to the reality of the business market place. According to the youth forum held in Madibeng in October 2016, there are no focused skills development centres in Madibeng. There are low skill levels in the business and agricultural sectors which are currently considered to be the growth areas in Madibeng. This leads to the scenario that new / young emerging farmers allocated land for agricultural development would rather sell the land if the opportunity is not working in the more immediate future. Young people do not necessarily have the patience to “wait for crops to grow, reaping the benefits only in a couple of years’ time”. There is a culture of immediate gratification amongst our youth. Social challenges emanating from inadequate schooling systems (basic education) which are in many cases still dysfunctional due to a lack of the most basic services, include high drop-out rates, early teenage pregnancies, etc. Young people are not adequately prepared for employment and/or for entering the business development world as young entrepreneurs. Recommendations for further research: A singular focus on social development is not sustainable, and creates long term dependencies. Socio-economic development, on the other hand, with the focus on economic growth creates longer term self-sustainability, growth, ownership and pride, which would reduce the social dependency cycle.

At the youth unemployment forum facilitated by CDE in Madibeng in October 2016, much fruitful discussion happened.

“Job creation is an entrepreneurial activity and not some government or agency responsibility;

We need to harness the power of entrepreneurs”.

Mike Nyenes, SEDA, Madibeng

36

Older people, typically through cooperatives, could employ young people to “pass on wisdom gained over many years / generations and the know-how of particular working environments. There is, however, one potential problem with this, as few young people want to be employed in the traditional work environments of mining and agriculture, but would rather prefer to work in “more attractive”, modern sectors, such as ICT related industries, Tourism, marketing, consulting – being more interested in “office jobs that pay more” and “provide more instant gratification”. Young people are exposed to television, the internet and social media through cell phone technology, which introduce a different mindset, and what the developed world offers. The youth are not necessary as patient as their parents to “wait for crops to grow and harvest” and “being hampered by the risk of drought, floods and other risks”. Those few young farmers who are keen to work in Agriculture, find it extremely difficult to establish themselves. Also, traditional jobs in, for example agriculture and mining, represent “hard labor” and may be associated with the many decades of apartheid – unless the concept of ownership, and not only the benefits of ownership, but also the responsibility that comes with ownership, are internalized. Recommendation: It would be important to profile young people first to identify where their passions, interests and aptitudes lie, and to develop understandings around “ownership and self-sustainability” versus “dependency on social hand-outs”, “demanding work” and “working for a salary”. Although local government representatives claim that Madibeng is a good place to create jobs in Agriculture, Tourism and Mining related industries, and the fact that the environment has good soil for agriculture, and have some of the best vegetable producers in the North West Province, young people tend to migrate away from towns such as Madibeng, to the cities in search of jobs of a different nature, for example young people moving to Rosslyn in search of jobs. They have witnessed and experienced from their parents, how hard it is to build your own business in the local space. Also, the environment is not necessary welcoming to young job seekers due to inadequate support structures and initiatives by government and other institutions. Local government recognizes the need for infrastructure development that exists. A concerted effort need to be made to work with young job seekers. Companies such as Harambee have very successfully placed thousands of young people in jobs throughout the country – mostly in larger towns and cities, however there is room for deployment of such services in smaller towns and villages. Recommendation: In such cases, companies such as Harambee will need to work closely with other institutions and mechanisms to stimulate economic growth through entrepreneurship, for example through supplier development along a particular product or service value chain – linking local producers with national markets. Internship programs for employment exist in the public sector, however, only so many jobs in the public sector can be created. There is a greater need to create internship programs in business and agriculture sectors – this would work in collaboration with organisations such as Harambee.

37

The many barriers to entry frustrates those young people that are able and willing to become entrepreneurs and young farmers. There is a great need for representative youth forums to converse on a more regular basis on the issues regarding job creation and employment, and to establish concrete programs where role players, such as local government, government agencies (such as SEDA, sefa, NYDA), NGOs and existing businesses, as well as the youth themselves, collaborate. Stronger relationships should be built with, for example:

The NYDA has a database of around 50 000 young people and are running a program “The Jobs Creation”. The NYDA does not have a physical office in Madibeng – nearest office is in Rustenburg – this needs to change.

SEDA and SEFA need to focus on the needs of young people, which require a different mindset.

Existing businesses should create opportunities for internships and apprenticeships for young people, and make known what skills they need, and/or what products and services they need (for young supplier development).

NGO should search for and attract young people with a social mindset. Recommendation for further research: Young leaders from within the community working alongside young leaders with experience in such programmes, need to be identified and empowered to become project and programme leaders and coordinators. There is a local responsibility (everyone in Madibeng pulling together) to help young people from Madibeng, and even attract young people into Madibeng to work with local youth. Everyone should “put on the hat of a young person in Madibeng” to try to gain a better understanding of the challenges and frustrations. Skills development, and not only theoretical education, should form part of the school curriculums, especially in rural areas. Young people are disillusioned as they have high expectations. It is important that, not only forums for discussion, but also pro-active and constructive programmes and workshops are created (with the input of young people) where expectations are discussed, frustrations, challenges and ideas are raised and developed. Institutions of higher education should also be involved in such programs and workshops, to ensure that information is shared both ways, i.e. training programs meet the needs of the business community and youth entrepreneurs and job seekers know what to expect from tertiary training institutions, i.e. what knowledge and competence will be gained. Recommendation for further research: Young people have the energy, drive and passion to make things happen. It is important that this passion and energy are channelled constructively, before disillusionment sets in, which could then lead to frustrated destructive behaviour. It is noted that outreach programs are launched by the various enabling institutions such as SEDA, Sefa, NDYA, etc. It is important, however, that outreach programs are aligned, and more than outreach is done – the purpose of outreach programs should be to inform and attract young people to participate in programs.

38

The NYDA work in close collaboration with companies such as the following:

Lulaway (provide training)

Harambee (assist young people from grade 12 to 29 years of age)

Jumpstart (link young people with retailers)

Sefa (assist young entrepreneurs with funding). Lulaway has a partnership with the NYDA and their mission is to open Lulaway Job Centres in all of their offices in SA. Five new centres have already been opened to date and have already started training. – these are at the NYDA offices in Johannesburg, Soweto, Tshwane, Emalahleni and Secunda. The NYDA assist young people between the ages of 18 and 35, and are running different programs providing a range of services, many which are free, including assistance:

to register a company for free

with business plans

marketing activities

entrepreneurial training Government funding that can be obtained with the guidance and assistance of the NYDA is a grant between R100 and R100k (repayment not required). CAPE TOWN Overview The City of Cape Town lies on the southern tip of Africa, within the Western Cape Province. It is the only metropolitan area within the broader Western Cape Province economy, and therefor the largest contributor to GDP. Economic overview

The regional economies of the Western Cape are linked to both the national economy and the global economy, on a number of fronts, and are therefore significantly impacted by fluctuations in the national economy. Three major macroeconomic changes include the slowdown and rebalancing in China, the further decline in commodity prices, i.e. crude oil, with sizable redistributive consequences across sectors and countries, and a related slow-down in investment and trade, and declining capital flows to emerging market and developing economies.12 The pro-longed drought in South Africa which started in 2015, and which has been felt more severely in the Western Cape in 2016/17, is having an impact on the agriculture value chain and together with inflation is having a negative impact on the local economy. These changes, together with a host of non-economic factors, including geopolitical tensions are generating substantial uncertainty.

12 IMF, 2016

39

Trade with the European Union (EU) The Western Cape, is specifically closely affected by South Africa’s trade relations and development co-operation with the EU, which are currently governed by the Trade, Development, and Co-operation Agreement (TDCA). The TDCA has established a free trade area that covers 90 percent of bilateral trade between the EU and South Africa. In June 2016, South Africa signed EU – SADC Economic Partnership Agreement (EPA) together with 5 other Southern African countries (Botswana, Lesotho, Mozambique, Namibia and Swaziland). The EU-SADC EPA will replace the TDCA, and will entail: Under this EPA, the EU will guarantee the above 5 countries 100 percent free access to its market. The EU has also fully or partially removed customs duties on 98.7% of imports coming from South Africa. South Africa’s vulnerable economy could be placed at greater risk of recession after the news on 24 June 2016 of Britain’s decision to exit the EU. A large current account deficit and negative economic growth mean that the South African economy can be tipped into a recession which could adversely affect jobs. South Africa is particularly vulnerable to outflows of capital, which has in 2017 reached more serious proportions with the move of this country to “junk status”. The country already has a large current account deficit, which could affect interest rates negatively, and subsequent impact on the financing of growth initiatives and businesses which is so drastically needed. The Western Cape is more particularly affected by the above movements, as the UK buys 10% of South Africa’s exported wine, 10% of exported citrus fruit, and 21 per cent of exported grapes. Repositioning of the UK’s trade relations in the view of Brexit would need to be carefully monitored and pro-actively be responded to, more particularly as it would affect the Western Cape economy. Economic growth / decline Where the global quantity of economic production (global output) is estimated to have grown by 3.1 per cent in 2015, with 1.9 per cent growth for advanced economies and 4 per cent for emerging market and developing economies. For 2016 global growth was project to remain modest at 3.2 per cent, before picking up to 3.5 per cent in 2017. 13 Although emerging market and developing economies would account for a large share of the world growth rate, yet their growth rate was projected to only increase modestly compared to past decades. In the first quarter of 2016 a sharp contraction in the mining industry tipped economic growth into negative territory.14 The South African economy underperformed previous growth projections by shrinking 1.2 per cent, quarter on quarter, with the economy experiencing a growth rate of only 0.5 per cent. Due to the on-going drought, the agricultural industry has fallen by 14 per cent since the last quarter of 2015. The transportation industry recorded two consecutive quarter on quarter falls, joining agriculture in recession territory. Business and consumer confidence

13 IMF, 2016 14 Statistics SA, 2016

40

With the more recent political challenges evolving out of the frequency in change of Finance Ministers, and the increasing investigations into and disclosure of the so-called “state-capture” scenario, and subsequent downgrade of South Africa to ‘junk status’, this is estimated to drop even further, with the potential for capital flight out of the country. The Business Confidence Index (BCI), which is based on enterprises’ assessment of production, orders, stocks, as well as its current position and expectations of the immediate future, has been declining, following the above trends, with the Consumer Confidence Index (CCI), which is based on households’ plan for major purchases and their economic situation, both currently and their expectations for the immediate future, following suit. Only 67.3 per cent of renters have been able to pay rent on time and in full in 2016 and there has been the third-largest decline ever recorded in Tenants in Good Standing, according to the TPN’s latest Residential Rental Monitor.15 Declining labor productivity Since 2011 labour productivity in South Africa has trended down. Currently structural reforms are needed to boost the productivity and employment to raise incomes and living standards (OECD, 2016). Key measures to boosts productivity and inclusion include ensuring more market competition, in particular in network sectors, strengthening management and investment of state-owned enterprises, encouraging development of small and medium-sized businesses by reducing ‘, red-tape’ and access barriers, and improving the education system. As structural weakness persist, growth remains subdued. Persistent electricity shortages and drought affected agricultural production growth in 2015, running into 2016, and 2017, especially affecting the Western Cape. The political uncertainties have reduced confidence further, hurting investment and consumption. Export opportunity One positive outcome of the current bleak economic outlook, is the fact that the depreciation of the Rand support exports, benefitting some manufacturing sub-sectors, and helped the mining sector deal with falling commodity prices. The national outlook remains fragile as electricity and water supply constraints are coupled with low commodity prices. A further tightening in fiscal policy is expected, probably in the form of increasing taxes rather than cutting government expenditure. The export market unfortunately is still underdeveloped in terms of the export of raw material and commodities rather than value added products, the latter of course being an opportunity for job creation and growth. Rising unemployment Employment numbers from Statistics South Africa show that the economy shed a massive 355 000 jobs between the last quarter of 2015 and the first quarter of 2016, and is still rising. The unemployment rate rose from 24.5 per cent to 26.7 per cent – the highest recorded since Stats SA commenced with the Labour Force Survey in 2008. The alarming increase in South Africa’s unemployment rate and rapidly rising food inflation – and fuel prices – are exacerbating the impact on pervasive income inequality on low income households. Low income households spend a proportionally larger share of their budgets on food and transport costs compared to higher income households and therefor typically bear the brunt of the impact of higher food and fuel prices.

15 Property24, 2016

41

South Africa’s economy is in a “bad place” and this trend is likely to continue over five years or longer. Gross Domestic Product (GDP) growth between 2015 and 2019 is expected to be the lowest since Second World War. Western cape economy The Western Cape economy accounts for around 15 per cent of the national GDP, and is a strong influence in the national economy, achieving a higher growth rate since 2009 than the rest of the country. Considering the key industry sectors in the Western Cape, this province has not been significantly affected by the decline in the primary sector but is strongly affected by the performance of the tertiary sector, which accounts for almost 73 per cent of the GDP. The largest decline in the provincial output came from the least two represented sectors, agriculture and mining, and the highest increase in production came from the two sectors that are the strongest represented in the Western Cape’s economy, wholesale and retail trade, and finance and business services. The economic sectors that contributed the most to the Western Cape’s economy in 2016 include finance, insurance, real estate and business services sector (30.2 per cent); the wholesale and retail trade, catering and accommodation sector (16.3 per cent); and the manufacturing sector (15.5 per cent). The agriculture, forestry and fishing sectors Gross Value Added (GVA) contracted yer on year 5 per cent in 2015 and 11 per cent in 2016. The electricity, gas and water sector, and the transport, storage and communication sector were expected to also shrink in 2016. The provincial growth performance by sector largely mirrors that of the national economy. The provincial economy is forecasted to start improving from 2018 with a 2.5 per cent GVA until 3.1 per cent in 2021. The political landscape in the Western Cape has been providing a relatively stable platform for economic development, however, national political uncertainties might have an impact on reduced confidence, investment and consumption overall, as is also visible in the dropping of the Business Confidence Index in this region in 2016. The increasing migration stream of middle to high income households to the Western Cape will contribute to the consumption and economic activity of this region, however, at the same time placing further strain on already stretched resources in terms of water, and other public services such as sanitation, roads infrastructure and electricity provision. Western Cape Labour dynamics In the 2015, there were 4.3 million potential workers residing in the Western Cape, where the overall population in this province was 6.2 million. In the second quarter of 2015, around 53 per cent of the working age provincial population (2.3 million) were employed, which is substantially higher that the national proportion of 43. The youth aged 15 to 34 years of age-population are the key constituency in the labour market in South Africa. The representation in the Western Cape is 2.1 million people. 35.5 per cent of which are unemployed. Additionally, per annum there has been a 5.6 per cent increase in unemployment in the age group 25 – 34 years old. The youth unemployment rates are double that of adults unemployed.

42

It is expected that employment numbers in the Western Cape will grow by 1.37 per cent between 2016 and 2021. Jobs will be lost in agriculture, forestry and fishery sector (-1.55 per cent) and the mining and quarrying sector (-3.66 per cent), but jobs will be created in all the other sectors within the Western Cape.

City of Cape Town metropolitan municipality “The City of Cape Town, possible the country’s best-run municipality, has the balance sheet and hopefully the competence to raise abundant funds from both private lenders and the central government for expanding the infrastructure of land, buildings and roads, investments that will make every economic sense for the City itself. And it would help provide access to jobs and meaningfully help relieve national poverty as young work-seekers in particular continue to migrate in large numbers to Cape Town, as they to do Gauteng and Durban.”16

. Cape Town contributes 71 per cent to the GDP of the Western Cape, with the largest contributors being the manufacturing sector, the wholesale and retail trade, catering and accommodation sector, and the finance, insurance, real estate and business service sector. Cape Town experienced an average GDP growth rate of 2.9 per cent between 2005 and 2015. The Planning Districts that experienced that highest annual average growth rates during this period were the Blaauwberg, Helderberg and Khayelistsha/Mitchell’s Plane. Areas of concern in the Metro include the rising households with no income and income inequality, informal dwellers, increasing ART patient loads, substance abuse and crime, among others. Assuming the Cape Metro can secure a productive mix of economic sectors, it might be possible for it to avert some of the economic slowdown by harnessing opportunities in key sectors. It is envisaged that higher economic growth will take place through the realization of opportunities that lie in the following industries: Business services, including for example Business Process Outsourcing (BPO), with a strong traditional focus on Call Centers through traditional Voice services, moving into the more digital industries related to the web, and other global technological developments. The electronics industry is growing fast in the City, with the opportunity for more locally produced products to penetrate this market, decreasing the reliance on imported products. African markets currently account for 51 per cent of the Cape Metro area’s electronic exports, with the opportunity for further growth in the region. Renewable energy, although initially stimulated by government initiatives such as the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), will soon not be in need of

16 Prof Brian Kantor, Get South Africa Growing, Jonathan Ball Publishers, 2017, page 98

According to the Finance Minister, Dr Ivan Meyer, there is a need for Provincial intervention to

encourage an economic structure that supports the skillset of the growing market of unskilled /

semi-skilled labour.

43

incentives, with costs, driven by improved technology, continue to decline. The cost of solar energy, for example, is expected to decrease to a fraction of the cost of fossil fuels in the next decade. This will be further aided by the increasing affordability of energy storage options. The City of Cape Town’s green technology Special Economic Zone (SEZ) in Atlantis, is an example of a forward thinking capitalizing of this opportunity, at the same time relieving the pressure on the services infrastructure in the inner City and surrounding areas. Having suffered for the last two decades under the strain of cheap Chinese imports, the clothing and textiles sector in the Cape Metro is beginning to rise through this barrier, with a mini-revival, mostly through a shifting demand in the demand structure of the industry. So-called Fast-fashion is the key trend, with speed to market becoming a critical factor. Enhanced production techniques, being implemented by Cape Metro area factories, as well as a re-think of the value chain of this industry, could lead to increased efficiencies with target turnaround times and cost advantages, at the same time spreading the benefit of this value adding industry, and reviving existing skills and competencies which have been in existence in this region for many decades. Tertiary education institutions, such as the Cape Town University of Technology is doing much work in support of enhanced production techniques in this space. The fashion and design strength inherent in the City would be a considerable strength in this value chain. Opportunities for development and growth in the agro-processing sector is driven by a number of factors, including sustained growth in global population, increasing demand for a wider range of agri-products, much of these driven by a need for “back to basics production” in response to a healthier palate, and exceptional growth of wine exports to neighboring countries, such as Angola. Having shed itself of unnecessary encumbrances of onerous visa regulations, the tourism industry in the Cape Metro area, are benefitting from favorable exchange rates and increased air access. Cape Town also has a growing reputation as a must-visit global destination, with Cape Town being ranked 11th (the highest African destination) in the US News and World Report’s Best Places to visit list, as well as being voted the top Food Travel Destination by Conde Naste. The Information and Communication Technology (ICT) sector is well established with the City having invested R544 million on broadband infrastructure to date as part of its broadband infrastructure project. This has had downstream benefits, not only in terms of reducing the City’s own telecommunications costs, but set the scene for ICT companies to utilize the growth opportunity for growth of their businesses in this part of the country. The ICT sector is also one of the few industries, where development incubators, such as the Bandwidth Barn in the Metro, has been sustainably successful for more than a decade. Shift to tertiary The overall trend in the shift of industries is evident in a move away from traditional ‘harder’ industrial and core agricultural industries (primary and secondary), to ‘softer’ business and value adding sectors (tertiary). Having been awarded the “World Design Capital Cape Town 2014”, due to its focus on the creative industries, including fashion, film, and media, is evident of a shift to the “softer” cultural industry sectors. Employment growth per sector The chart below indicates the trend in employment growth within each economic sector in the Cape Metro area from 204 to 2015, with a total of 279 021 jobs created.

44

Source: Quantec Research, 2016.

Top companies in the Cape Metro area From data collated from the Western Cape Top300 Companies (based on criteria developed in partnership with the Cape Chamber of Commerce, the Western Cape Provincial Government, Accelerate and Wesgro) for the Cape Metro area, the number of top companies per sector are reflected in the graph below.

Source: Topco, 2016 and Wesgro, Fact Sheets, 2013

International Trade Of the total of exports during 2015 in the Cape Metro area, 54 per cent included electricity, gas and water products; 25 per cent included mining and quarrying products; and 21 per cent included agriculture, forestry and fishing products. Of the total imports during this same period, 57 per cent included manufacturing products, 3 per cent agriculture, forestry and fishing products, and 40 per cent mining and quarrying products.

8370-245

-32226

2002

25337

90420

3222642458

5095559 724

-40000

-20000

0

20000

40000

60000

80000

100000

Employment changes (2004-2015)

33

10

12

71

24

109

3

0 20 40 60 80 100 120

Manufacturing

Electricity, gas and water

Construction

Wholesale and retail trade, catering andaccommodation

Transport, storage and communication

Finance, insurance, real estate and business services

Community, social and personal services

Number of top companies

45

The regional trade balance has been negative since 2005, indicating that the Cape Metro has been importing more products that the exporting of products. This could also be attributed to the fact that the Cape Metro area has an international airport, and one of the largest harbours in South Africa. Cape Town should continue to aggressively attract foreign direct investment (FDI) to facilitate export-orientated businesses to establish their activities in the Cape Metro area. There is potential for the Cape Metro area’s export market to further expand to other regions in Africa in particular. The current weakness of the Rand also presents an opportunity for local firms to expand their exports and Cape Town’s manufacturing exporters should be encouraged. The clustering concept, combined with a greater focused application of value chains, especially in value adding production, marketing, packaging and distribution in the manufacturing and processing industries, should be explored and developed (see discussion on transformational change enablers in the final section of this report). Municipal socio-economic analysis There are a number of indicators related to human development in the Cape Metro, including population, households, indigent households, household income, income inequality, and poverty, access to basic services, education levels and health matters. The graph below indicates an upward trend in the Human Development Index (HDI) for the Cape Metro area, in contrast with the areas economic growth rate which has been moving in a downward trend, having dropped from 4.1 per cent in 2011 to 1.1 per cent in 2015.

Source: Western Cape Department of Economic Development & Tourism; HIS Global Insight, 2016 Population and households The total population of the Cape Metro increased by 7.08 per cent from 3 740 026 in 2011 to 4 004 793 in 2016, according to figures of a recent Community Survey by Stats SA. Although the population growth in lower income households (Khayelitsha/Mitchells Plain, Cape Flats, and Tygerberg) have grown excessively over this period, the projections for 2017 to 2021 is

4.1

2.752.5

2

1.1

0.72 0.731 0.741 0.748 0.747

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2011 2012 2013 2014 2015

HDI 2011 to 2015

GDPr growth HDI

46

that the difference in population growth between these and higher income households will flatten out. This has already been visible in the large migration numbers of middle to higher income households from the northern provinces of the country to the Cape Metro area. Much of this could be attributed to the drive to move away from higher crime Metros to a lower crime Metro, and perception of improved service delivery. Income inequality and poverty Income inequality has risen over the same review period. It is much higher in the Cape Metro than the provincial average over this period. Results from Statistics SA Community Survey 2016 shows that the intensity of poverty in the Western Cape declined to 40.1 per cent in 2016 from 42.6 per cent in 2011. There is however, still a significant number of poor people in the Western Cape Province whose income is below the poverty line. Over 20 per cent of households in the Cape Metro currently live in informal or squatter settlements, with an estimated 254 577 households living in informal dwellings in informal settlements and backyards. Access to decent housing is one step towards human development, with basic services such as electricity, water, sanitation and refuse removal in order to be considered ‘developed’. Although there has been increases in access to water and sanitation, there has been a decline in access to electricity and refuse removal, the latter creating significant health and environmental hazards, which could put a further downstream strain on financial resources. Recommendations for further research: Preventative refuse management (not only refuse removal) measures could create work opportunities for many poor households – all that is required is some innovation, education and introduction of a value chain concept to create inclusive value for all along the refuse management chain. Currently refuse removal is but one unsustainable step in a very short value chain, with many challenges. Education Primary school education is a foundational requirement for human development, and therefore it is a major concern that there are around 66 060 people in Khayalitsha and Mitchell’s Plain without any schooling, followed by the Cape Flats (38 313) and Tygerberg (25 301). Unemployment levels are likely to be higher these areas. Economic growth within the Cape Metro should translate to jobs and better education for people living in these areas. Unemployment is likely to be lower in areas where there are large numbers of people with a grade 12 certificate and higher educational achievements, as these people would be skilled or semi-skilled. The challenge regarding job creation is across the board, as we require both basic education and skills development at the bottom of the pyramid, as well as skill development and job creation at a higher education level to build a stronger self-sustainable middle-class to not only achieve basic human needs, but to develop a population that is less dependent on the state, and that can build a sense of pride, worth and wealth for themselves, and add value to the economy.

47

Health The biggest strain on the health services in the Cape Metro area are attributed to the high ART and TB patient loads, with a significant increase in ART from 99 223 people in March 2013 to 131 177 in March 2015. There were 259 ART clinics / treatment sites in the Metro in 2015. TB patient loads have remained more or less the same over this period. There were 433 TB clinics / treatment sites in the Metro in 2015. Child health data shows a very high rate of full immunization coverage for children under the age of one year, and minor cases of severe malnutrition. The neonatal mortality rate as well as the maternity mortality ratio is higher in the Metro than for the Province. The Cape Metro has the highest percentage of pregnancy termination especially amongst teenage women. Recommendations for further research: Preventative healthcare education and care could create work opportunities for many poor households – all that is required is some innovation, education and introduction of a value chain concept to create inclusive value for all along the healthcare and lifestyle management chain. Like many other such social dilemmas, we face in this country, ‘fire-fighting’ the consequences of poverty, unemployment and moral decay, is not a sustainable solution. Findings from structured questionnaires

Opinions were retrieved from three stakeholder groups in Cape Town, namely Government, Organised Business and Business Enablers, on between 13 and 20 structured questions, four of which are portrayed in the graphs below.

0 2 4 6 8 10 12

Internal efficiencies within businesses' control

A poor work ethic / labour disruptions

A poorly skilled workforce

Uncompetitive and unreliable suppliers

An unfavourable environment due to government (alllevels) action/inaction

An unfavourable environment due to factors beyondgovernment control/influence

Other (CTCCID: Broadband)

Currently the biggest constraints on the competitiveness of businesses in Cape Town

48

0 1 2 3 4 5 6 7 8 9 10

Lack of infrastructure

The macro-economic environment

The policy environment

The regulatory environment

The political environment

Stakeholder perceptions

Other (specify)

Currently the biggest constraints on the growth of businesses in Cape Town

0 1 2 3 4 5 6 7 8 9 10

Provision electricity (directly or through Eskom)

Provision of water

Provision of sanitary services

Efficiency of service billing

Provision of roads and traffic control measures

Provision of town planning and related services(buidling plan approval etc)

Enforcement of municipal by-laws

Other (good administration)

The municipality's actions impact on the business community in Cape Town most positively in the following areas:

49

Business sector growth Views on the business sectors in Cape Town that show the best growth potential, include the following. Tourism, and all its supporting services; agri-processing, especially in CBD surrounding areas (e.g. Phillipi), the so-called “blue economy” including aqua-culture and boat-building, etc; oil and gas; the so-called “green economy” industries (e.g. Atlantis Green Economy Zone); the so-called “circular economy” involving recycling and related industries; Information Technology and related services with many start-ups also in the broader technology field; Housing, real estate and property development; and Boatbuilding, which is stable but quite significant. The business prospects outlook seems positive from an entrepreneurial point of view. The prospect from a heavy engineering manufacturing point of view seems lower as the global economic environment downturn has a negative impact on the exports of South African goods. National government role Views on the actions that national government should be taking to support the growth of businesses in Cape Town, include support for and enabling small to medium enterprises to grow, need to more entrepreneur and problem solvers, removal of red tape, need to more technical colleges, need for productive labor across all levels - labor law is considered to be too restrictive. Recommendations were also made regarding a TOD (Transit Orientated Development) Strategy, within a so-called tactical urbanizing strategy. Alternative corridors should be developed to alleviate the pressure on the main routes into the CBD and surrounds. Much progress has been made in this regard. Also making land available for business development. There should be more leverage on bilateral relationships with foreign governments to market and grow the presence of South African made products in their local markets.

0 2 4 6 8 10 12

Provision electricity (directly or through Eskom)

Provision of water

Provision of sanitation services

Efficiency of service billing

Provision of roads and traffic control measures

Provision of town planning and related services(buidling plan approval etc)

Enforcement of municipal by-laws

Other (specify) (CTCCID: provision of services afterhours - night time economy; bad administration)

The municipality's actions impact on the business community in Cape Town most negatively in the following areas:

50

This should include, more specifically for Cape Town, the creation of an awareness of South Africa’s Maritime capabilities to the continent. South Africa and Cape Town should be marketed as a Maritime hub of the continent, thereby drawing more Foreign Direct Investment (FDIs) to the Western Cape. Provincial and local government roles Views on specific actions provincial and local government can take to support the growth businesses in Cape Town, include: The re-introduction of technical colleges, skills development and training courses, including computing courses, brick laying, maintenance, handy man skills, improving communication skills (e.g. introduce Xhosa to schools), the introduction of special “maths and science” labs across all age groups, and entrepreneurial courses for young people at school. Furthermore, identification of new markets in South Africa & Africa and overseas, and assisting small companies to such markets through regular expos and conferences, improved connection amongst local businesses. It is recommended that the Department of Economic Development (both the provincial and municipal departments) be expanded. Funding should be increased for these departments, to make it a level 1 priority. High profile economists and entrepreneurs should be engaged to assist in the development of an appropriate economic strategy that is suitable for Cape Town – a strategy that should be communicated to everyone. An economic strategy formulation and roll-out should be performance driven, with a focus on incentivizing, and setting measurable and achievable goals. Currently the big departments are generally infrastructure led, with large capital projects, which are mostly service orientated. A view was raised that capital will eventually run out if there is not significant local business growth. Stakeholders interviewed raised the importance of better alignment between the national, provincial and municipal planning, budgeting and implementation. The current Provincial minister of Agriculture, Economic Development and Tourism in the Western Cape, (also title Minister of Economic Opportunities), Alan Winde, has been facilitating a number of longer term, transversal, integrative initiatives focused on progressive economic growth and development, such as the Atlantic Green Economy hub, and the Saldanha Industrial Development Zone, which also aligns all three dimensions of development and sustainability, namely economic, ecological (green), with significant downstream social benefits. He is also making a considerable contribution to promoting the ease of doing business in this region, and the reduction of red tape bureaucracy. A multi-disciplinary portfolio such as the above, helps to integrate and align planning, execution and monitoring across traditional silos, with a greater efficiency outcome. Good administration is required around environmental impact assessments, planning; waste management licensing, etc. is required together with specific promotion in terms of Ease of Doing Business.

51

The roads infrastructure around industrial areas in close vicinity to the CBD and harbour, needs to be re-planned, not only in terms of expanding existing infrastructure, but also considering “out of the box” solutions to the congestion problems around the city and the heavy loads burden on the roads infrastructure. This could range from planning/scheduling around travel times of various types of vehicles, to considering to move part of the container harbour up north to the West-Coast (e.g. Saldanha). Provincial government can play a lobbying role with both National and Local Government to support the growth of businesses in Cape Town. Institutional barriers Party politics often cloud and hamper effective intergovernmental planning and execution (especially between National and DA governed Provincial and Local government). The on-going national issues around land redistribution, for example, continue to place stress on the already high risk agriculture sector, considering natural risks such as droughts, and the changes taking place on the demand side of international market places (e.g. Brexit). This is where having strong academic institutions in the Western Cape (such as Elsenburg in Stellenbosch, and the PLAAS initiative at the University of the Western Cape), where innovative responses are researched and developed in collaboration with government, is a great benefit. The Western Cape Government having for a number of years been implementing a Transversal Management System in terms of which transversal programmes, projects and initiatives are transversally managed. Transversal Working Groups are established which report back to transversal Steering Committees, with the Steering Committees in turn reporting back to the Provincial Top Management. Within the province there is therefore no institutional barriers to getting our voices heard. Sometimes the fact that the Western Cape is a DA-led province does, however, result in party politics getting in the way in that it would seem as if sometimes positions or initiatives put forward by the Western Cape Government in national forums are not supported simply because it is perceived as coming from the DA. The Western Cape Government, continuous to actively participate in the national forums and to push for positions and initiatives to be considered on their merits. Progress are being made. A major institutional barrier is, however, the fact that while all the different sector have national coordination structures that allow for the relevant national minister to meet with the provincial ministers responsible for the portfolio, with actions from these forums flowing to technical committees where the national and provincial official meet (the MinMECs) (Minister and provincial MEC meeting) (MinMEC Techs, etc.), structures for coordination of planning was never put in place. Through the planning law reform process it was however decided to establish national work groups to coordinate the implementation of SPLUMA (Spatial Planning and Land Use Management Act) across SA. These work groups must be formalised into a MinMEC, MinMEC Techs, etc.). Co-operative governance remains a challenge. While good progress have been made, there is further room for improvement. The three spheres of government and all the organs of state within each sphere must further improve their integrated planning and integrated delivery. Coherence by government, good administration, and spatial alignment and spatial targeting are vital.

52

The planning law reform (SPLUMA) was only concluded recently (2014) with the Western Cape Municipalities only having adopted their new Municipal Planning By-Laws during 2015 and 2016. The Western Cape Municipalities are only now working on their new SPLUMA compliant Spatial Development Frameworks. The new Municipal Spatial Development Frameworks, if done correctly, could have a huge impact on the promotion of specific types of development in specific areas. Local Government Equitable Share formula As also again highlighted by the Finance and Fiscal Commission (FFC) in their 2016/17 DORA submission (dated September 2015) there are major challenges with the DORA.17 Most municipalities spend up to 60% of their budget on infrastructure, but often the grants do not provide operational and maintenance funding. There is a need for the grant system to be restructured. Municipalities often focus more on the sustainability of the institution rather than economic growth enablement. For example, historically many municipalities obtain a major portion of their income from selling electricity, but due to budget constraints have to use the income for operational costs rather than for maintenance of the electricity distribution network. Over the years SALGA have also made a number of submission on alternative funding models, e.g. their submission on alternative funding models for road infrastructure.18 On the question as to what extent infrastructure maintenance and development is driven by the needs of business versus the needs of households in Cape Town, it was indicated that this is a major issue for any municipality. The City of Cape Town spends the majority of their budget in poor areas (i.e. pro-poor budget) but maintenance and operational budget must also be spent wherever the maintenance is required. The City is, however, trying to use Development Contributions by businesses and rates together with their incentive schemes to finance and incentivise development. Key LED projects / programmes The “Local” in LED has historically been problematic in that the focus tended to be on smaller poverty alleviation projects rather than on a strategy for the mainstream economy in the municipality. The City of Cape Town have done some very good work in incentives to stimulate economic activity.19 In terms of the work being undertaken the Transit-Oriented Development (TOD) is a good example of initiatives underway.20

17available at: file:///C:/Users/53270029/Downloads/FFC_Annual_Submission_2016-17_DoR_Presentation_ Final_September_2015.pdf). 18 available at: http://www.cityenergy.org.za/uploads/resource_210.pdf 19 See: http://www.capetown.gov.za/work%20and%20business/doing-business-in-the-city/business-incentives-and-grants/incentives-for-business-in-cape-town.

53

Good administration including spatially aligned and spatially targeted implementation by all three spheres of government are vital. The City also has an Incentives programme.21 Municipal regulatory constraints With regard to municipal regulatory constraints hampering economic growth and inclusive job creation in the City of Cape Town. Many municipalities are confronted with the challenge that they have to spend large parts of their budget on the poor on for example the upgrading of informal settlements and provision of services to indigent households with these expenditure, while vital for service delivery, does not constitute economic investment in the sense that the beneficiaries often do not pay any rates and taxes. It is therefore a challenge for municipalities to also spend some of their budget on “economic investment” in the form of economic infrastructure. The Municipalities have over the years highlighted numerous challenges with the Municipal Finance Management Act. The skills gap (in that the skill of the unemployed to the match the skills required for many of the available and new jobs) is a major constraint. Cape Town has for example already changed their “enforcement” in terms of planning and building regulation to provide a “private banker” experience. A facilitatory pro-active approach to promoting development through incentive and other schemes and policies makes a huge difference. Again see the City’s Incentives programme.22 Provincial regulatory constraints EIAs and other permitting requirements are often perceived as a constraint, but the new “One Environmental System” which came into effect in December 2014 have gone a long way to shorten time frames and streamline and synchronise the processes. A facilitatory pro-active approach to promoting development through incentive and other schemes and policies makes a huge difference. The Department of Environmental Affairs and Development Planning for this reason have established the Directorate: Development Facilitation who over the last number of years have assisted with efforts to facilitate sustainable development. Institutional reforms Much has already been done around institutional reforms to improve how local and provincial government deals with business enablement processes and procedures.

20 See: http://www.tct.gov.za/en/investment-profiles/tod/ 21 See: http://www.capetown.gov.za/work%20and%20business/doing-business-in-the-city/business-incentives-and-grants/incentives-for-business-in-cape-town 22http://www.capetown.gov.za/work%20and%20business/doing-business-in-the-city/business-incentives-and-grants/incentives-for-business-in-cape-town.

54

In terms of institutional arrangements the Western Cape Provincial Government helped establish and now serve on the Western Cape Economic Development Partnership (EDP). Each municipality and provincial government Department should have a “development facilitation unit” as a “front/help desk” for business enablement.

Youth job creation and skills development A number of programmes are being rolled out by the Western Cape Government and the City of Cape Town. See the Western Cape Government’s website ( https://www.westerncape.gov.za/service/youth-development-programme ) as well as the City of Cape Town website (https://www.activateleadership.co.za/cells/view/44 ). The biggest constraints regarding youth employment are considered to be related to the skills gap, lack of social cohesion in many areas, and too strong labor laws. Business enablers Cooperatives as an economic development and growth enabler in Cape Town, is considered the one of the biggest enablers. See the work by the WC Economic Development Partnership (EDP).23 Business incubators are also considered to be an effective enabler in the City.24 The Bandwidth Barn put the concept of incubators on the map in Cape Town. Other examples of newer incubators in Cape Town, include: http://www.sarebi.co.za/ https://medo.site/ http://springlab.co/ Business accelerators are also considered to be an effective economic development and growth enabler in Cape Town.25 Engagement with business The Ministry of Local Government, Environmental Affairs and Development Planning has established a Provincial Planning and Development Forum on which senior officials meet with representatives of business and other sectors. The forum meets quarterly and great progress has been made in terms of the level of engagement and joint search for solutions. The Western Cape Government has also established WesGro and is a partner in the Western Cape Economic Development Partnership (EDP). Open communication and sharing of information, and pro-active identification of challenges and joint search for solutions, are outcomes of these platforms.

23 http://www.wcedp.co.za/ 24 See for example: http://www.eajournals.org/wp-content/uploads/Assessing-the-Impact-of-Incubation-Programme-to-Small-and-Medium-Enterprises-Development-in-the-Western-Cape-Province-of-South-Africa.pdf 25 See for example: http://www.eajournals.org/wp-content/uploads/Assessing-the-Impact-of-Incubation-Programme-to-Small-and-Medium-Enterprises-Development-in-the-Western-Cape-Province-of-South-Africa.pdf

55

Government’s role in job creation, is to provide an enabling framework for business and the private sector to create jobs. Both large, medium and small businesses are promoted through the efforts. Specific programmes have been set up (see the Department of Economic Development and Tourism’s website) to support small and medium enterprises.

Private-public Interfaces At the provincial level, an interface similar to the Ministry of Local Government, Environmental Affairs and Development Planning’s Provincial Planning and Development Forum, as well as the Western Cape Economic Development Partnership (EDP) would be ideal. There are a number of successful municipal private-public interfaces that have been in existence for more than a decade, making a valuable contribution to the smooth running and development of the City, at the same time helping to deal with issues of concern. Examples are the Cape Chamber of Commerce, the Cape Town Partnership, Accelerate Cape Town, the Cape Town Central City Improvement District (CTCCID). The Cape Chamber of Commerce The Cape Chamber of Commerce with its 2500 members, has a 90 per cent focus on the Cape Town metropolitan area, with a large focus on small business services, geared towards economic growth and development. It hosts around 200 events per year, within various business promotion chapters and portfolio committees. It services as a platform for business information, networking opportunities, training and events including the hosting of international delegations in particular industries and sectors. The Cape Town Partnership The Cape Town Partnership is a Cape Town-based collaborative public-private partnership organisation that exists to develop, promote and manage areas of the Cape Town central business district as a place for all citizens. The Cape Town Partnership is an independent non-profit organisation (Section 21 company) governed by a Board of Directors. Andrew Borain was the Chief Executive of the Partnership from 2003 until 2013. Bulelwa Makalima-Ngewana succeeded Boraine as CEO in 2013. The Partnership was created in 1999 when the City of Cape Town, the South African Property Owners Association (SAPOA), the Cape Town Regional Chamber of Commerce and Industry, and other stakeholders came together to address the impact of urban decay, capital flight and the wicked problems present in Cape Town's City Bowl / CBD area. The Central City Improvement District It was decided that a Business Improvement District model would be best suited and so the Central City Improvement District was created in November 2000 in partnership with property owners within the central city area to provide complementary municipal services over and above what the City of Cape Town provided. Safety, cleaning and social development are focus areas of the Central City Improvement District. The noted urban renewal of the CBD area has been built upon the strength of successful private-public partnerships at both operational and strategic levels. The Partnership promotes investment within the CBD, advances sound urban planning principals and aids property developers and investors in Cape Town CBD projects. In doing so, it also seeks to balance the negative impact market forces bring to urban environments such as gentrification and development-induced displacement.

56

Notable place-making projects that the Partnership has contributed towards have been the City of Cape Town’s Bus Rapid Transit system, the revitalization of Cape Town’s central square, Grand Parade (which served as a successful FIFA Fan Fest area during the 1020 FIFA Football World Cup), the successful bid for Cape Town to be designated World Design Capital 2014, and the redesign and implementation of the upgrade of Cape Town's Church Square among others. The Cape Town Partnership is also involved in street-level activations such as the facilitating and co-sponsoring the first smart bench in Cape Town, performances of famous musicians in public spaces, and in making public spaces in Cape Town’s central business district more convenient as places of cultural expression, as seen by the #100AfricanReads project during City Walk Saturdays. Innovative “making living work better in Cape Town” kind of initiatives are continuously launched through this partnership. The recent launch in August 2016, of the so-called Jumpin Rides initiative, is one of the newest additions to the local carpooling scene, providing a platform for drivers and passengers to connect throughout South Africa, and addressing the problem of Cape Town’s serious traffic congestion problem. The South African Boat Builders Export Council and Maritime Industry Association is a public-private organisation and interacts with the DTI on a regular basis. The boat building academy along with the Maritime industry run a work placement program for those studying boatbuilding, which is one of its initiatives that addresses the skills gap of especially young people in the Cape. There are a number of initiatives, approaches and enabling mechanisms effectively applied by the Cape Town Municipality, to facilitate the assessment, management and monitoring of some of the socio-economic challenges faced by the Municipality. Planning districts The Cape Metro area has been divided into eight so-called ‘Planning Districts’, which have diverse and unique socio-economic challenges and opportunities. This allows for focused planning relevant to addressing the most pressing needs of each. This also plays to the concept of ‘clustering’ of similar problems and challenges, enabling the finding of common solutions. Economic Resources and publications Formerly known as the State of the Cape Town Economy, the so called EPIC provides relevant and up-to-date information on Cape Town’s economy on a quarterly basis. This includes statistics and an analysis of key economic trends, which provide direction for economic development strategies. The publication is accessible to a range of stakeholders, present economic intelligence and analysis, and focuses on localized economic performance trends, with particular sector focus, such as the film industry, clothing and textiles, renewable energy, etc. Economic growth strategies and policies are also published on-line, including for example: Trading plan formulation, Informal Training Implementation Plan, Investment Incentives Policy, Business Support Facilities Management Guidelines Framework, Business Support Policy, Urban Agrculture Policy, Informal Trading Policy, Special Rating Area Policy, etc. There are also a number of specific initiatives, which are published as examples of further value adding services and initiatives that may be more broadly rolled out by other regions.

57

Local Government in the context of National Government There are a number of national government initiatives that are effectively rolled out on the local government level by the City of Cape Town Metro Municipality, some of which has also been discussed under the section of this report addressing the challenges and opportunities for economic growth and development in Madibeng. Agri-parks Government launched the Agri-parks programme in 2015 as one of the cornerstones or rural economic transformation – led by the Department of Rural Development and Land Reform, the programme is intended to provide communities with jobs, food security and opportunities to prosper. The APS system is a relatively new concept to South Africa, but the idea draws from existing models both locally and abroad, which includes: educational/experimental farms, collective farming, farmer-incubator projects, agri-clusters, eco-villages, and urban-edge allotments, as well as market gardens. These models exist in both a public and private capacity, serving as transition or buffer zones between urban and agricultural uses. The focus of the Agri-parks is primarily on the processing of agricultural products, but with the Agri-park being farmer controlled with the model having a strong social mobilization component so that emerging farmers and agri-business entrepreneurs are actively mobilized and organized to support this initiative. Recommended further research: Further versions of this model should be explored, after considering the successes and failures of such model implementations across the country and in other parts of the world. This may include the combination of the Agri-parks and the agricultural value chain and clustering concepts. IDZs and SEZs Another two major economic development initiatives being undertaken in South Africa are Industrial Development Zones (IDZs) and Special Economic Zones (SEZs). An IDZ is a purpose built, industrial estate linked to an international air or sea port which might contain one or multiple Customs Controlled Areas (CCA) tailored for manufacturing and storage of goods to boost beneficiation, investment, economic growth and, most importantly, the development of skills and employment in these regions. IDZs are intended to promote the competitiveness of the manufacturing sector and to encourage beneficiation of locally available resources. The Saldanha Bay IDZ (SBIDZ) is located within the Saldanha Bay Municipality in the Western Cape, which includes an active port harbor, and the Sishen-Saldanha rail line. SBIDZ is the first zone to be designated in a South African port, set up in October 2013. The City of Cape Town also has an SEZ at Atlantis, namely the Atlantis GreenTech SEZ, situated 40 km north of the Cape Town central business district (CBD), and is one of the mechanisms in place to create an enabling environment for positive economic development (GreenCape, 2016).

58

The aim of the Atlantis GreenTech SEZ is to attract not only large manufacturing firms but also engineering consultancies and small and medium sized suppliers. It is seen as the ideal incubator for entrepreneurs with a vision of supplying into the green energy supply chain. This particular SEZ has several incentives available, including:

Financial measures including an electricity tariff subsidy

Exemption from land-use application feesd

Non-financial measures such as assistance from the City of Cape Town for companies to obtain faster environmental authorization from the Provincial Department of Environmental Affairs and Development Planning.

Local Government in the context of Provincial Government The above example of the Atlantis GreenTech SEZ, is just one of many examples of where the Provincial Government and Local Government work together effectively to enable economic growth and development. The innovative and integrated Apprenticeship Game Changer programme of the Western Cape Government, aims to address the skills required for high growth sectors such as Renewable Energy, in targeted areas such as the West Coast. More than half of the population in this region are between the ages of 18 and 35, and 30 per cent are unemployed and largely unskilled. In countries with high proportions of young apprentices’ relative to the employed population – such as Switzerland, Austria and Germany – youth unemployment is much lower. Work-readiness programmes include training for apprentices, learners, trainees, interns, and artisans. They are key to create jobs for youth and skills for business, because it:

Ensures that training matches the needs within a company or industry

Keeps up-to-date with changes in technology, work practices, and market dynamics

Links classroom and workplace training so that young people acquire relevant skills

Equips young people with critical core skills, such as problem solving, teamwork, and communication

Offers young people a small income while preparing for the job market

Helps them clear the hurdle of having no job experience, a barrier that prevents many university graduates from securing their first job

The aim is to achieve sufficient, appropriately qualified technical and vocational skilled people to meet the needs of prioritized economic growth sectors in the Western Cape. Agri-processing In 2015, the then MEC of the Western Cape Agriculture, announced a newly established Land Reform Advisory Desk. This service would provide support to emerging and existing farmers in the industry on the different ways on how to structure land reform deals. In total, R742 million had been allocated to Vote 11 to create an enabling environment in which the Western Cape’s farming and agri-processing operations could grow the agricultural economy and create employment in the sector. The minister’s view was that creating jobs for the people in the rural areas is the only way in which the biggest challenge: poverty, could sustainably be addressed.

59

Phillipi Economic Development Initiative (PEDI) PEDI is a good example of local and provincial government working closely with local business leaders to enable economic sustainability and growth in an important metropolitan-agricultural area, creating an urban-rural connect, right in the heart of the Cape Metro. A market potential study was completed to provide insight into what the future could look like for Phillipi and understanding of the strategic importance of the area in the future development of the Cape Town Metropole. With the support of the City of Cape Town Economic Development & Tourism Department, and Sub-Council, a comprehensive business retention and expansion study was undertaken with local business leaders to establish what the conditions were like for businesses located in the area. A dramatic decision was made by the provincial government to fund a R600 million project to upgrade access betweem the Phillipi and the N2 national road, dovetailing well with the City of Cape Town’s plan to expand their MyCity bus network, with seven of the of the MyCity bus routes eventually running through this area. The road network in the area would be upgraded to accommodate buses. Upgrade of the access to the area will make it easier for businesses to operation and will attract additional companies to relocate to the area.

Value chains The value chain concept, if explored and applied to its fullest extent and potential, is probably one of the most effective, valuable mechanisms to pull SMMEs out of a ‘lonely struggle to survive’ into an inclusive market place and thereby not only creating growth for themselves and jobs for others, but also making a sustainable contribution to the economy. The City of Cape Town has embarked on a relatively new journey of promoting value chains as an enabler of inclusive economic growth and development.

“To illustrate the power of partnerships, I’d like to tell you more about Chamomile Farming

Enterprises in Philippi. Wadea Jappie started this operation in 2001. By 2003, she was farming

with 100 chickens.

Through a small amount of assistance from the Comprehensive Agricultural Support

Programme (CASP), and a lot of hard work and dedication, Chamomile’s current production

stands at 4 500 eggs per day from 5000 chickens. Today, Wadea’s Chamomile eggs can be

found on the shelves of our local Pick n Pay stores.

This is what partnerships can do. During my first year as Minister of Agriculture, I have visited a

number of national government land reform projects, and have witnessed first-hand how many

of these operations were set up for failure. We need to turn this around. Government, in

collaboration with the private sector, must ensure we give beneficiaries the best chance of

success.

Funding gives young and black farmers the boost they need to be a part of the growth story of

this sector.”

MEC Alan Winde: Western Cape Agriculture Provincial Budget, vote 11, 25 March 2015

60

The initial two value chains officially explored and promoted by the City are the Green Economy, and the Business Process Outsourcing (BPO) value chains. Green Economy The green economy is complex, extremely diverse, relatively new, and fast evolving in many of its segments, particularly in the Western Cape. Both the Western Cape Province and the Cape Town area have a stated aim to position the region as the green economy hub of Africa by creating an enabling environment for businesses specializing in green products and services. Both the initial and downstream benefits are exponential and supports the so-called SEE (socio-economic-ecological) triangle of sustainability and significant opportunities for inclusivity. The City of Cape Town has commonly associated itself with the UNEP-based definition of the green economy, emphasizing low carbon, resource efficient, socially inclusive and sustainable solutions. More recently the City’s Green Economy, Energy and Climate Change Working Group has refined the working definition of the green economy to mean expanded economic opportunities through the provision of goods and services and the use of production processes that are more resource efficient, enhance environmental resilience, optimize the use of natural assets and promote social inclusivity. The desired outcomes, amongst others, include identification of new economic opportunities, environmental risk-reduction, and job creation. The core sectors that make up the Cape Town area green economy are the construction sector focusing on green buildings, the transport sector focusing on sustainable transport infrastructure, sustainable waste management practices, renewable energy focused on solar and wind energy, and resource management (sustainable agricultural production and processing, and water management). BPO Business Process Outsourcing (BPO) is defined as the process of contracting third-party service providers to undertake the operations and responsibilities of a specific business process. in the Western Cape it is currently it is mostly associated with firms’ outsourcing segments of their supply chain, including inputs and outbound logistics, operations to convert inputs to finished services, outbound logistics, marketing and sales, after care services and also, supporting services such as procurement, technological development, HR management and company infrastructure. More specifically it also includes Enterprise Resource Management (ERM), Human Resource Management (HRM), Customer Relations Management (CRM), Knowledge Processing Outsourcing (KPO), Engineering and Development and Information Technology Outsourcing (ITO). South Africa is rated as one of the top three emerging BPO offshore locations, and the most important offshoring destination of choice, compared to countries such as India, the Phillipines, Poland, Northern Ireland, Malaysia, Morocco, Sri Lanka, Egypt and Kenya. The currency benefit, the relative geopolitical stability as well as first world financial systems and infrastructure, have been key benefits to date.

61

Recommended further research: The concept of BPO can be further explored and extended to enable a large benefit to the SMME market segment, especially where SMMEs focus only on one specialized component of a particular overall business value chain, and will therefor benefit significantly by participating in a bigger value chain. In the Western Cape, the agricultural value chain can very effectively be integrated in related value chains such as Tourism and Waste Management, for example exploring the waste/food loss potential initiative at the Spier Estate in the Winelands. Another example is the introduction of the renewable energy value chain into the cold storage facilities, which form part of the broader agri-culture, agri-processing value chains. Recommendation for further research: There is exciting room for further research in exploring the alignment and integration of various value chains. Recommendation for further research: One of the key downstream benefits of the application of the value chain approach is the positive impact it would have on the trade balance of the particular region. Broadband connectivity The way young people interact, engage and learn is changing, and therefore the importance of connectivity is vital in creating opportunity, and providing access and opening up a world of knowledge for people of all ages. Broadband connectivity is provided by private service providers, as well as free connectivity from government, providing free access to government websites, and enables citizens to have opportunities to connect to information, tender opportunities, details about internships/bursaries, etc. The City of Cape Town provides free 500 MB per month in 102 libraries across the municipal area and the City if also rolling out fiber broadband access to all buildings in the central business district (CBD) as part of its investment into a municipal broadband network project. The City aims to connect 950 governments and 2500 private buildings across the metro by 2021. This will make a significant difference to providing access to learning and education for the large number of unschooled individuals in the City of Cape Town. Also providing access to business opportunities for young entrepreneurs. Research by Swedish mobile brand Ericsson estimates that a country’s GDP can grow by 1 per cent for every 10 per cent increase in the number of people online. Doubling the broadband speeds was also connected to a 0.3 per cent increase in a country’s GDP. Small Medium and Micro-sized Enterprise (SMME) best practice as an enabler of growth A large number of people are working in and living off the informal economy, which makes it an important factor in considerations in reducing poverty and inequality.

62

Five types of SMMEs have been identified, namely:

Survivalist Enterprises (Income generated in the informal economy below the poverty line, providing the minimum means to keep the unemployed and their families alive.)

Micro Enterprises (Between one and five employees, often family owned, but operating without formal structures, and could make a transition to a more formal business)

Very Small Enterprises (Part of the formal economy, with less than 10 paid employees, and include self-employed artisans and professionals)

Small Enterprises (Less than 100 employees, formal and registered, with fixed business premises. Simple management structure)

Medium Enterprises (Up to 200 employees, still mainly manager owned, but decentralized management structure, and complying to formal requirements)

SMMEs play a major role in the global economy. This is evident in the fact that SMMEs employ one third of the world’s labor force. In countries like China, SMMEs employ up to 80 per cent of the total labor force. The growth of SMMEs is considered an indicator of future economic growth and competitiveness – the most important one as a substitute for job creation. SMMEs have the potential to become the root of new and/or emerging industries and sectors due to their radical innovation tendencies and their ability to identify new markets through their export and expansion potential. Despite the recognition of their importance, SMMEs still face various challenges, one of the most important being access to finance, especially long term investments. Other challenges include lack of access to information, lack of market knowledge sharing and collaboration amongst businesses. Further obstacles include the cost of bureaucratic red tape and an unstable business environment. The contribution made by government, as is done in the City of Cape Town, should be more than easing the registration processes of businesses, and the provision of basic services, including not only water, electricity, infrastructure (roads), trading spaces for informal businesses, but also safety and security. These should be non-negotiable. Value adding enabling mechanisms as discussed above will make the difference. Both Cape Town and Madibeng still struggle with basic service delivery in large parts of the municipal area – these should be addressed as access to basic services are one for the most foundational rights of citizens, including business owners who are battling to make a living and their contribution in a self-sustainable manner to the economy. Various governments in the OECD has implemented strategies and policies from which best practices have been identified. This include government support for venture capital and funding (such as is provided through the various funding vehicles and government agencies such as SEFA in South Africa), the implementation of technology dissemination programs, training and education, and access to mentoring for business management. A quality product of products is but half of the solution. One of the most important requirements however, is access to markets, and the avenues to connect to markets. Participation in value chains help SMMEs to bring their product up to quality standards, as well as connect them with the appropriate markets in their industry sector. Recommendations for further research: Although there are examples of successes of growing SMMEs through government support structures, these are few and far between. The track record of government efforts, both nationally and on a provincial level, seem to have failed dismally. It will be important to do a further study to

63

investigate why many initiatives which have been launched over the last two decades in an effort to make this happen, such as the Red Door initiative in the Western Cape, and the Enterprise Propeller initiative in Gauteng, which was rolled-out at a local government level, has not been as sustainable or as wide-reaching as it could be. The Western Cape Government has now launched a new program, called ‘The Red Tape to Red Carpet Programme’, with the aim of creating and maintaining an enabling environment for businesses. The programme aims to reduce red tape by: Striving to eliminate regulatory obstacles faced by entrepreneurs as they seek to grow their businesses and create jobs by making it easier to obtain information on starting and growing a business, including access to advice, training, and referral to finance sources. Identifying red tape, including the rules, regulations and procedures that serve as barriers in the interaction between the public and private sectors, through:

Showing leadership in advocacy for better regulatory reforms

Driving key initiatives to reduce red tape associated with bureaucratic delays

Gathering evidence on the impact of red tape in key sectors in the Province so as to identify and prioritise areas for regulatory reform.

A Business Helpline has been created to provide guidance to entrepreneurs and SMMEs in the start-up and running of their businesses, and to identify and address red-tape-related barriers experienced by SMMEs and businesses in general. Enabling initiatives in the six regions of the Western Cape, have had varying levels of success. Particular to the SMME environment in the City of Cape Town, the largest group (43 per cent) constitute those that have some secondary schooling but have not completed matric. The second largest group (27 per cent) is made up of people with matric only. Together these two groups account for 70 per cent of informal sector workers. The two greatest barriers of growth most frequently cited by owners of informal businesses are access to better locations (41.4 per cent) and stifling government regulations (40.4 per cent). There are only 7 727 SMMEs/informal traders that have so-called e-permits in the City of Cape Town. The majority of SMMEs are situated in Cape Town CBD, Bellville, and Mitchells Plain. There are ± 14 000 informal traders, and ± 20 000 formal traders in the City of Cape Town, and there are 121 entrepreneurship development organisations. The City if working on reviewing their Business Support Policy to guide the City’s decisions and actions in relation to small business assistance or support including assistance to navigate the City and resolve red tape related matters. The Business Support Policy builds on the ‘whole organisation’ approach of coordinated action from all City departments in support of economic growth and business development. This include:

A focus on regulatory modernization in support of the City’s competitiveness as a place to do business

Promotion of supplier development opportunities and outcome based procurement practices

Promotion of business incubation by identifying underutilized Council assets for economic development

64

Identifying, packaging and delivering catalytic and high impact projects in partnership with the private sector for economic regeneration at prioritized nodes

Provision of an industry forum for the various agents of state and private sector business support organisations

A number of support mechanisms are provided for informal businesses, including access to markets, development of informal trading plans, provision of basic trading infrastructure, access to support and development agencies, access to business networking opportunities, improvement of the processes affecting the manner in which the City does business with informal traders, also involving traders in planning of urban spaces. In addition to the Red Tape to Red Carpet initiative, further specific support mechanisms for formal businesses include the implementation of two Business Incubators, namely Renewable Energy, and Wood Manufacturing Products. Recommendations for further research: Research into the effectiveness of business incubators as a mechanism for business enablement and growth. Historically there has been a small number of successes, but the general perception from discussions with stakeholders is that the concept is not working, and in most cases the implementation thereof has not been sustainable. In addition to the above initiatives, the Trade and Investment Department of the City administers an investment incentives policy, and provides sector support through Special Purpose Vehicles (SPVs), development facilitation services throughout the City (e.g. the Atlantis Investment Facilitation Office), support to inter-government catalytic projects and partnerships with the private sector, up to date economic and business intelligence relating to the Cape Town Economy, and promotes and curates the City’s business brand amongst investment activities. Recommendations for further research: Research into the effectiveness of Special Purpose Vehicles in the City. This mechanism has been in place for decades. In order to advise other smaller metros and municipalities on the application of effective mechanisms, one would first need to determine whether these are effective, and it not, how it can be adjusted. Recommendations for further research: Some, if not most, of the recommendations made in this study, will contribute to alleviating the challenges SMMEs face, for example, the forming of clusters, their participation in the value chains of their respective industry sectors, and access to affordable broadband, and subsidized economic zones. Perspectives from other key stakeholder groups / role players in Cape Town Executive Mayor of Cape Town, Ms Patricia de Lille Recent executive business conversations with the Mayor of the City of Cape Town, organized by Accelerate Cape Town in November 2016, provided a platform for business to raise awareness of the requirements for, and issues impacting on, economic growth, while the City of Cape Town could share details about their strategy, also sharing highlights on particular initiatives and projects, such as Invest Cape Town.

65

Invest Cape Town is a brand initiative aimed at positioning Cape Town as a business destination rather as only a tourist destination, which for some time may have overshadowed its business investment opportunities. Making Cape Town energy secure is a top priority to attract foreign investment. The City set a target of sourcing 10-20 per cent of its energy needs from renewable sources by 2020. The City is working hard to diversify its energy mix and is aggressively pursuing independent energy sources to give citizens a choice about the type of energy they would like to purchase. This is further enabled by the focus of on making Cape Town the biggest zone for GreenEnergy development and production in Africa. The investment growth in this space has escalated over just a couple of years, and is bound to grow exponentially in the five to ten years. Further insights into how a number of key challenges are being resolved in and around the city, include the re-organisation of the Mayoral Committee to implement a multi-disciplinary, localized and areas-based service delivery model aims to provide a greater service to citizens by dividing the City into four areas and having a Mayco member responsible for each area which is home to between 800 000 – 900 000 residents. This is not a new concept, as it has been successfully trialed in the Helderberg planning district. On addressing challenges from the Apartheid legacy, the City has a so-called Transit-Oriented Development (TOD) plan which was approved by the City in 2016 and was nominated for a C40 Award in 2016. With low to medium income citizens spending 40% of their income on travelling, the objective of the TOD is to unlock economic development by creating mixed-use residential and commercial areas with high-density, affordable housing located close to transport and social amenities. The City has identified five urban development projects that it would like to roll out in the next five years, namely:

1. Development of Bellville in collaboration with the Greater Tygerberg Partnership 2. Connecting Phillipi with the airport industria with the Phillipi East Partnership (Philippi hosts,

amongst other, urban agricultural land and is considered the vegetable basket of the City) 3. The on-going development of the Central Business District (CBD) in collaboration with the

highly successful Cape Town Partnership 4. Paardevlei in Somerset West, a 684-hectare piece of land which will be also be used for a

balanced mix of residential and job creation opportunities 5. Maiden’s Cove in Camps Bay.

The Helderberg planning district has already started to successfully develop integrated residential and commercial areas, such as are visible in the vicinity of Paardevlei, around the Somerset Mall, where citizens can literally walk or use bicycles to travel to their work places. The issue of transport congestion in Cape Town will further be addressed by a number of other developments including the R750 million investment to deal with congestion in the V&A Waterfront, Kuils River, and Kommetjie. Solutions would be a combination of structural changes of the City and behavioral changes of its citizens, for example the greater use of public transport (such as the MyCity bus services), use of alternative transport means, sharing transport, moving and living closer to work places, and/or starting SMMEs closer to home, etc.

“Cities and the development plans they choose are the drivers of change and economic growth”

Mayor Patricia de Lille, 18 November 2016

66

Government Agencies SALGA The South African Local Government Association (SALGA) is playing an important role in facilitation of local economic growth and development through a wide range of supporting and collaborative mechanisms. Discussions with the Programme Manager: Economic Development & Planning of SALGA in the Western Cape revealed a number of collaborative initiatives between provincial and local government and SALGA programs, one such example being the Provincial Department of Environmental and Development Planning and SALGA Collaboration on the RSEP/VPUU Programme and Small Town Regeneration Programme partnership.

Wesgro Wesgro is the Western Cape’s official Destination Marketing, Investment and Trade Promotion Agency, and has been in existence for more than 30 years. It remains the oldest organization of its

The City of Cape Town is one of three municipalities participating in the Violence Prevention through

Urban Upgrading (VPUU) Programme.

The VPUU Programme has been implemented in the City since 2005, involving the development of so

called VPUU Safe Node Areas in four distinct neighbourhoods, including Hanover Park and

Manenberg, Khayelitsha (Harare and Kuyasa) and Gugulethu-Nyanga (GUNYA).

Mechanisms include for example Community Action Plans and Public Investment Frameworks, both

of which were completed by the end of 2015 for Hanover Park and Manenberg.

The VPUU NPC has also been tasked with developing, in partnership with all provincial line

departments, selected City of Cape Town line departments and NGOs, the Youth Lifestyle Campus as a

legacy project within the After School Game Changer. A Youth Lifestyle Campus is conceived as a safe

place integrating many activities and partners that creates a hive of learning, healthy lifestyle, sports

and recreation, arts and culture, where young people have opportunities to do their homework, have

fun and improve their lives.

One of the priority projects is the redevelopment of the Hanover Park Town Centre for which the VPUU

NPC is responsible for project management of the infrastructure work, providing architectural and

urban design services and developing a high-level Area-based Management Plan to ensure sustainability

of the project.

The VPUU NPC's key areas of work in GUNYA include the implementation of two of the Western Cape

Government's Game Changers, namely: the Alcohol Harms Reduction Game Changer and the After

School Game Changer.

67

kind in the country, and continues to perform exceptionally well – even under a difficult global and local economic climate, according to CEO Tim Harris. Wesgro moved towards a much more integrative approach to data and business intelligence, working closely with all the business sectors earmarked for growth enablement in the Western Cape. During the 2016/2017, with the weakening of the Rand, Wesgro trained more than 500 companies in export readiness, helping them to build their capacity for export. Hundreds of companies were taken to market to help grow their global sales. On the investment side, Wesgro surpassed the R2-billion mark in terms of investment landed in the Western Cape, the biggest investment being the R1.189-billion renewable energy project from Spanish-based Acconia in the rural area of Gouda, working in collaboration with GreenCape. NGOs and NPCs There are an increasing number of NGOs fulfilling an important role in working closely with communities on the ground. CEFA One such example is CEFA (Continuing Education for Africa), based in the town of Wellington, focuses on community education, bridging the gap between school and higher education. Their aim is to equip young people throughout South Africa with knowledge, skills and values to empower them to become involved in the development of people and communities. CEFA believes that with the right education, people can become change agents in their communities. Business Schools Business Schools and Schools of Public Leadership

“Cape Town has a dynamic business environment that is underpinned by strong competitive

advantages, including world-class companies, well-developed infrastructure, effective public sector

governance and top tertiary education institutions. The city is also a cultural and innovation hub, as

well as a popular tourist destination.

There needs to be a greater support for small businesses, whose challenges and needs are different

from those of big firms. Bureaucratic red tape and onerous compliance costs are a problem and

must be reduced. Also, Cape Town remains a segregated city and significant sections of the

population are excluded from business opportunities. This is not conducive to building an inclusive

local economy.

The city has a vibrant and enterprising business community. The city’s abundant business

opportunities, as well as its magnificent social and cultural attractions, are a magnet for

entrepreneurs, innovators and creative people.

The City should invest in infrastructure, especially in upgrading and expanding the road network, to

accommodate growth in the city, forge better business-government partnerships, and build a more

integrated city that draws on the entrepreneurial talents of all racial groups.

I admire self-made entrepreneurs and business people – those who started their enterprises with

nothing and achieved great success.”

Prof Mills Soko, Director of the UCT Graduate School of Business in the V&A Waterfront in Cape

Town, March 16, 2017

68

Organised Business in Cape Town Medium and large business enablers A number of business enablers have been in existence over many years, and have been playing a key role in in addressing and resolving some of the most pressing issues that lie in the challenging space between government, business and citizens, through a collaborative partnership model. The most prominent include The Cape Town Central City Improvement District, the Cape Town Partnership and Accelerate Cape Town. Accelerate Cape Town Accelerate Cape Town is a business leadership organization representing top-tier corporate business in the Cape Town city region, established in 2006. The organization provides a forum for corporate business to connect and catalyze action to position Cape Town for growing economic success as a globally recognized business destination in Africa. It is achieved by:

Connecting Business, Government and Higher Education to grow relationships and catalyze action through an extensive networking and events programme

Conceptualising programmes and accelerating initiatives to provoke action-orientated discussion on topical economic issues

Providing a conduit for private sector participation in large government driven initiatives, as well as ensuring business continuity in the event of political upheaval

Advocating for policies and practices supportive of economic growth and representing the view of the business in conversation with government.

Through their CEO engagements the organisation creates a forum for CEOs of corporate members and other top-level business leaders in the region to network at a senior level across business and government. A wealth of opinion papers are made available from conversations held with corporate and public leaders over many years. The organisation is still going strong and making great strides towards its original founding objectives. Accelerate Cape Town, through its branding and conversation platform of successfully bringing stakeholders for growth and development together, has an opportunity to be a facilitator of inclusive, emerging business and leadership development, in collaboration with the thought leadership of academic institutions on its doorstep. To grow the local and national economy, Accelerate Cape Town works with corporated businesses and agencies such as the Stellenbosch Innovation District, Cape IT Initiative and the Western Cape Economic Development Partnership to develop symbiotic relationships with enterprises in the SMME sector. Relationships are also developed with the region’s Higher Education institutions to focus on commercializing innovations, growing enterprises and leveraging the city’s status as Africa’s most innovative city.

69

As a conversation platform it has highlighted a wealth of economic development, growth and investment opportunities and success stories over the years. Examples include:

Award-winning social entrepreneurs co-founding and managing an internet café turned one-stop IT franchise company with 40 branches.

The Cape’s impressive innovation success in biomedical technology, through a collaborative ecosystem of universities and young entrepreneurs. With the support of Wesgro, a Western Cape Medical Devices Cluster was formed in 2016 with one of its objectives to lobby for local procurements, moving away from the current import of 93 per cent of medical devices. Wesgro has been working on a feasibility study for the so-called Cape Health Technology Park. The Bertha Centre for Social Entrepreneurship at the Graduate School of Business of the University of Cape Town in the V&A Waterfront, is an important role player in contributing to the academic developmental research in this space.

The roll-out of high-speed accessible broadband to attract businesses to the region, also helping to transform it into a ‘living lab’ for the development of health and other solutions for Africa, helping to achieve the City’s objective of being globally oriented and connected to achieve regional success.

Since 2010, Accelerate Cape Town has been hosting the KPMG Sustainability Forum, with the aim to place both economic and environmental sustainability firmly on the corporate agenda. The objective is to advance a sustained economically viable region that is also socially responsible and environmentally sound. It is not only about “green”, but also leveraging the Cape’s national resources in a sustainable manner.

Engagement with educational institutions, as well as with government to represent the views and requirements of business to ensure that highly skilled individuals are encouraged to invest in the region, to take advantage of the growth opportunities.

Promoting the growth and highlighting of Cape Town as an innovative technology hub in South Africa and Africa, through collaboration with Digital Government and other initiatives such as the Cape Innovation and Technology Initiative, and Silicon Cape.

Two recent surveys (Ventureburn Startup Survey 2015 and PWC survey) show that between 56 – 59 per cent of start-ups or emerging companies are base in the Cape Town city region including Stellenbosch. The Southern African Venture Capital and Private Equite Association also states that the Western Cape has 75 per cent of all the South Africa’s venture capital type deals. The four Western Cape universities accounted for 46.8 per cent of the activity, and Stellenbosch University and UCT filed 120 PCT patents resulting in 24 spin-out companies in the same period. The aim of the Accelerate Cape Town Innovation Programme is to enable collaboration between the universities and Cape Higher Education Consortium on the innovation value chain at universities, creating an ongoing platform for engagement with business and universities, through mentorship, guidance and collaboration, promoting Cape Town as a start-up destination and understanding the role of government and how the current legislation and regulatory environment is impacting on partnering. Accelerate Cape Town’s economic zone programme aims to showcase and facilitate discussion on the opportunities that results from IDZ and SEZ developments such as the Saldanha IDZ and the Green SEZs designation in Atlantis. The organization provides a conduit for business to engage with the relevant government agencies. To strengthen trade relations with key economies and provide greater opportunities for participants, Accelerate Cape Town is forging stronger relationships with the economic development units of the diplomatic missions in Cape Town.

70

Accelerate Cape Town also has a transport programme with the aim to improve public and non-motorised transport for providing access to opportunities, as well as supporting economic growth and attracting investments in the Cape Town region. Remaining challenges Although there are many success stories in Cape Town, many significant socio-economic-ecological challenges still remain. The City has been putting in place many long term innovative enablers and plans to address what it perceives to be its greatest problems, the successful execution still remain a challenge and takes time and resources to implement. The wide range of semi-skilled and unskilled unemployed labor force residing in the Metro, with problematic attitudes towards work, productivity and an unbalanced focus on rights, as well as the “instant gratification mentality” of a significant part of our younger generation, still remain some of our biggest challenges. Intergovernmental collaboration and execution have been picking up momentum in the Western Cape, however, there are still too much visible evidence of problems that have not been addressed yet, such as:

Safety and security: The significant safety and security concerns of travelling on key national routes that run through the City of Cape Town area, with cattle, goats and sheep grazing in unfenced areas in close proximity of the national roads, as well as the high rate of high-jacking incidents.

Murder: One of the highest murder rates in the world, with the uninhibited drug and gang problems in the lower income settlements in the City of Cape Town area.

Pollution: The significant pollution and failure of waste management in and around the informal settlements, with storm water running into the rivers, streams and canals, and into the sea, creating severe direct and indirect environmental and health hazards for all citizens.

The Soetrivier running down from Somerset West through the lower income settlement areas of the Strand, into False Bay, seem to have been ignored. Both the citizens of and visitors to Cape Town pass the literally black Liesbeeck River on a daily basis on route to the CBD. These are just two of many more such appalling scenarios in and around the CBD. What is needed are pro-active and sustainable solutions, addressing these complex problems at its root causes and source in a sustainable and systemic manner. Challenges create opportunities for work - sustainable work that does not only involve “picking up the continuous stream of waste”, but also work towards more preventative and also behavioural changes. Picking up the waste of other people, who continue to waste without the means, drive or habit of caring for our planet, is extremely demeaning. The sad reality of this scenario is that more often than not, it is the older generation that one finds sweeping the streets, picking up waste along the N2, and “cleaning up the mess” of younger generations. Something is seriously wrong in this order.

71

Consolidated opportunities Examples of current national and localized initiatives that, if aligned and channelled towards common objectives, create enabling opportunities for more collaborated approaches to the challenges discussed in this research report. The Integrated Urban Development Framework (IUDF) The Integrated Urban Development Framework (IUDF) sets out the policy framework for transforming and restructuring South Africa’s urban spaces, guided by the vision of creating ‘liveable, safe, resource-efficient cities and towns that are socially integrated, economically inclusive and globally competitive, where residents actively participate in urban life’. To support this vision, the IUDF proposes an urban growth and management model premised on compact and connected cities and towns. This will require a highly coordinated, systematic and collaborative approach by the various levels of government, the private sector and civil society, as well as an understanding of the respective roles and responsibilities needed to achieve the common vision of spatial transformation. It also calls for leadership and strong political will to oversee and support the implementation of the IUDF. Cities are made and shaped by a range of actors, including communities, the public and private sectors as well as learning institutions. These actors may operate individually and/or collectively to effect growth and development. Each of the nine policy levers and the cross-cutting issues require the participation of a number of stakeholders across all spheres and sectors of government, the private sector, non-profit organisations, local community organisations and sector interest groups. When these various groups collaborate and are driven by the same vision and agenda, the desired urban transformation can be achieved. (The Integrated Urban Development Framework – Implementation Plan 2016 – 2019 from the Department of Cooperative Government). An example of the work that national government is doing in this regard, according to the Gauteng MEC for Housing and Infrastructure Development, Jacob Mamabola (Business Report, Pretoria News, 24 May 2017), is their prioritizing of about 101 catalytic human settlement projects that involve the development of new towns of 15 000 units each that would be linked to exiting cities with efficient and affordable public transport. He said that government had moved away from the practice of large numbers of micro projects that were dotted all over the landscape to focus on a lesser number of integrated mega and catalytic projects. Larger macro projects also seems to be the bigger plan of the Provincial Government of the Western Cape with their Atlantis and other similar integrated industrial and residential hub developments. Considering the poor or complete lack of infrastructural designs of townships and human settlements over the last 3 to 4 decades, there clearly is a dire need of good town planners with the ability to think and plan systemically and longer term. Recommended further research Proper integrated community development throughout South Africa needs to be done, considering all the difference sizes, locations, and levels of development maturity of cities, towns and communities, where the private sector and all relevant government departments work together throughout the long, medium and short term planning stages of such development. Appropriate skills development to fill this gap is a considerable career opportunity for young people, also including, for example, project management, financial, engineering and construction skills, plus the multitude of other macro and micro-economic business development skills involved.

72

Instead of this HUGE concern of where we will find jobs for the growing pool of employable young people, and trying to place them in existing public sector institutions and established traditional corporates (such as mining) we need to create new economic pathways, in the industries of the future, namely hi-tech, green energy, creation of better living spaces, community development, education, etc. SPLUMA The South African Cities Network report on SPLUMA as a tool for spatial transformation (March 2015), explores the extent to which the SPLUMA, the Spatial Planning and Land Use Management Act (16 of 2013) can effectively aid spatial transformation. The report gives an excellent overview of the development of the act and discusses the integrated application thereof through 4 lenses including Economic drivers, Social drivers, Spatial drivers and Governance drivers. Its effectiveness will only really be tested through its integration with other policy frameworks and acts, such as the IUDF discussed above, the National Development Plan (2013) and the municipal Integrated Development Plans (IDPs). At a policy level the White Paper on Local Government set the stage in 1998 for a new paradigm in the form of developmental local government with an emphasis on integrated development planning. A host of other related policies and acts followed. One of the more refreshing shifts emanating out of the above developments, is that provision is being made for cross-boundary plans that would promote collaborative action in areas including biodiversity protection, climate change adaptation, heritage, tourism, and transportation. Another is the development of a more effective system of governance for city-regions, enabling integrated, city-region-wide coordination of planning. The above developments all contribute to new economic pathways for economic growth and development, and job creation. SALGA The enabling platforms and mechanisms created by institutions such as the South African Local Government Association (SALGA), plays an invaluable role in facilitating development and training at the local government level, mostly from an governance perspective. Recommended further research: It could provide for interesting and useful research to explore with SALGA their mandate with regard to all 4 lenses (economic, social, spatial and governance) discussed above, and their role in facilitating integrated development. Organised Business and other enabling institutions Cape Town has a relatively large number of organized business organisations that represent particular industry sectors, such as FPEF, SABBEX, and Silicone Cape, the Cape and Technology Initiative, and the Cape Film Commission. The Fresh Produce Exporters’ Forum (FPEF) is a voluntary, non-profit organisation based in Cape Town with more than 130 members, accounting for over 90% of fresh fruit exported from South Africa. FPEF provide a wealth of support services, including training, innovation, research, publications and an exporter’s directory. The South African Boat builders Export Council, SABBEX, is a national export council, with the aim of making Cape Town, amongst others, one of the boatbuilding hubs in South Africa. The council is a

73

major contributor to establishing South Africa as a globally competitive boatbuilding export country, with sustainable export growth within the dti framework. Providing better and broader access to broadband is a key priority for the Western Cape, as for most cities in the world, both developed and developing, at this point in time. The Western Cape government has identified this as an enabler that will act as a catalyst for growth across several economic sectors. There are, for example, 2000 ICT firms in the Western Cape and they have 17 000 employees. A group of entrepreneurs, investors and developers has created the non-profit Silicon Cape initiative which aims to support this rapidly expanding sector, The Cape Innovation and Technology Initiative (CiTi) is another support system for the ICT sector, including the Bandwidth Barn Incubator. The Cape Film Commission, established in 2000, has a mandate to promote the industry and locations for filmmaking within the Western Cape including Cape Town, Plettenberg Bay and George. They are a Not for Profit independent organization, unlike other commissions that are extensions of government, state or municipal departments, allowing the flexibility to generate funding through various government departments, including the Department of Trade and Industry (DTI) and the National Lotteries Board. In Cape Town they work closely with the City of Cape Town, government agencies, parastatals and film industry representative bodies. SA Cities Network The South African Cities Network (SACN) is an established network of South African cities and partners that encourages the exchange of information, experience and best practices on urban development and city management. Since 2002 the SACN’s objectives are to:

Promote good governance and management in South African cities

Analyse strategic challenges facing South African cities

Collect, collate, analyse, assess, disseminate and apply the experience of large city government in a South African context

Encourage shared learning partnerships among spheres of government in order to enhance good governance of South African cities.

The strategic thematic areas (like “outcome lenses”) through which cities are viewed by the SACN are:

A productive city

An inclusive city

A well governed city

A sustainable city Recommendations for further research Integrative systemic models, such as the SANC one briefly discussed above, and models currently being explored by cluster initiatives of the Provincial Department of the Western Cape (Department of Environmental Affairs, Economic Opportunities, Premier, and Agriculture, should benefit all town and cities in our country. As intellectuals we are good at creating models and doing great strategic planning, however, the HOW we should implement this, creating jobs for everyone, not only in the process of implementation, but also once implemented, is the current challenge. One such systemic model which has been tested, perhaps not exhaustively, but at least to an extent, is the so-called Domains of the Entrepreneurship Ecosystem (as per the paper of Daniel Isenberg and Vincent Onymah, presented at the Global Entrepreneurship Congress in 2016.)

74

The development and testing (across different size and maturity cities, towns and communities) would provide valuable drivers and recipes for sustainable development and growth. Graduate Schools of Public Leadership (US SPL; NWU) The City of Cape Town (and the broader Western Cape) as well as Madibeng (in the broader provincial region) have access to world class business, agricultural and public leadership schools, some of which have highly specialized research centers addressing the particular sector needs of their region. Examples are the Bertha Centre for Social Entrepreneurship at the University of Cape Town, Elsenburg Agricultural Training Institute, and the School of Public Leadership of the University of Stellenbosch. The latter has a strong focus on Public and Development Management, including good governance, the strengthening and promotion of economic growth and social structure for sustainable development, responsible citizenship, and, very importantly, holistic and interdisciplinary thinking, with a strong focus on, not only the formulation, but also the implementation of strategic plans across the different spheres of government. Some of these training institutions and universities are proactive in realizing both the importance and opportunities in setting up satellite campuses across the country to widen their footprint, addressing the developmental needs in more distant communities and towns. Agri-parks initiative In its essence, the creation of so-called Agri-parks is an initiative by the Department of Rural Environmental, meant to assist provinces with an agricultural focus and land capacity to contribute to economic growth and job creation. The aim is to generate revenue as well as empower women and youth. It is envisaged to attract investment in both domestic and international fund markets and ensure food security in rural households and revival of food gardens in rural areas. The objective thereof is further to implement a sub sector operator model to enforce clustering and processing thereby creating market access. Economically viable sites in all 27 priority districts have been identified across the country for the construction of Agri-parks and R2 billion has been made available for the Agri-park initiative, of which 1% will go into capacity building especially in municipalities. Recommendations for further research Again, the success of such initiatives will only materialise if it is managed, not in isolation, but as part of an integrated model, as discussed above, for example, the broader introduction and utilisation of the intellectual capacity at training institutions such as Elsenburg discussed above. The benefit from working in collaboration cannot be underestimated. Number of research networks contributing to Local Economic Development ERLN The Economies of Regions Learning Network (ERLN) was established and piloted in 2012 with a view to actively support innovation and effective implementation of regional economic development programmes through institutional transformation and improvement processes. The ERLN is a South African Community of Practice that focuses on Economic Development at the sub-national level, with the purpose of bringing together economic development practitioners in all spheres of South African government through enquiry and cooperation and to strengthen leadership in the regional economic development arena. Through a focus on regional economic development

75

approaches, understandings, tools and skills, the ERLN aims to contribute to innovation and the effective advancement and realisation of South Africa's inclusive growth. The sub-national geographic focus of the ERLN is generally at a scale smaller than provincial, but larger than a single metro or municipality. It is a level of focus which becomes critical when considering major infrastructure investments (for example, the spatial SIPs), understanding value chains and clusters, and where opportunities for developing competitiveness and innovation can be coordinated. Working at the sub-national or regional level enables the drawing together of a number of factors spatially as well as with the implementation of processes (including collaboration with business and universities), and to use them as a lever to support development. An important issue for consideration in regional economic development is how to link rural to urban areas, as sources of market demand and infrastructure; as well as the role of cities as a key component of growth - the ERLN’s research work is complemented by a practical how to make it happen focus. Department of Small Business Development National Government’s SMME development space is occupied by the recently established Department of Small Business Development (2014), following a consolidation of a number of institutions focusing on this space. However, “the jury is still out” on the success of this consolidation – we are still to see sustainable contributions made to economic growth happen in a multi-disciplinary manner across all spheres of government and related agencies. The current focus seems to be on domestic small business sustainability, and survivalist job creation at the local level. Recommendations for future research To enable greater economic impact on a national and regional level, an increased focus should be placed on rapidly moving SMMEs with growth potential up the growth curve – this is the difference between local survivalist businesses and regionally focused growth businesses. There is room for an SMME focused study to explore this. IODSA Institutions which previously focused predominantly on the corporate market, need to reposition their membership space to become more inclusive. For example, the Institute of Directors of Southern Africa, and subsequently the King Codes on “Corporate” Governance the Institute curates, needed to become more inclusive (i.e. also including emerging and public enterprises). Under the leadership of Adv Ansie Romalho, and through consultation with a wide range of stakeholders, the IODSA came to realize that firstly their membership could be significantly enhanced, by including non-corporate directors to their membership (the corporate directors of the future), as well as the applicability of the latest King Code, with the downstream effect of growth in the economy.

76

CONCLUSIVE RECOMMENDATIONS Transformational change enablers as catalytic development opportunities for these two cities The purpose of the brief discussion of potential change enablers below, is to spur further research and development to arrive at possible strategies for economic development and job creation at the local and regional level – economic development that can contribute exponential economic growth and sustainable job creation. One: Fostering The concept of fostering has potential benefits across a wide range of applications. Related concepts such as cross-pollination, collaboration and sharing across provincial and regional boundaries, as well as private and public sector boundaries, can help struggling towns to leap-frog over many years of evolutionary development that may involve testing of strategies that have not been tried before. Madibeng, for example, can benefit from the City of Cape Town’s sharing of ‘recipes for success’ of their economic growth enablers and related initiatives, and the modus operandi of integrative development across departmental and private/public sector boundaries. Fostering can take place on a number of levels: At the city level At the highest level, the fostering of a smaller town (Madibeng) by a larger more progressive city (i.e. Cape Town). This is somewhat different to the concept of “twin cities”, which can be found between peer cities in different parts of the world, also with the purpose of establishing benefits that may come from preferential partners, or ‘belonging to the same family”. Such an example is the recent signing of a Letter of Intent between mayors Kasim Reed (City of Atlanta in Georgia, USA) and Patricia de Lille (City of Cape Town) in October 2016. It involves a commitment to making every endeavour to develop cultural and economic relations between Cape Town and Atlanta and to establish Atlanta and Cape Town as gateway partners for US-Africa partnerships. The intent is for the cities to work together to improve social inclusion and to enhance economic growth. The City of Cape Town if well placed to host initiatives that will enhance the world’s understanding of the challenges faces by cities. A potential Cape Town Madibeng relationship would work well, as they share some similar industries (Tourism, Agri-processing), and, as all cities do, common challenges of unemployment, skill gaps, and poverty. The benefit of the so-called “Mother City” is that it has some good success stories and more recently launched a host of growth and development initiatives, where provincial and national government work together effectively. At the business level At the business level, the fostering of small emerging enterprises by larger corporate companies in the same industry sector, or on the same value chain, should be explored. At the individual level At the individual level, the fostering of young emerging leaders by more established prominent leaders (business and community leaders), is a real opportunity for leadership development.

77

Two: Youth Empowerment The identification of young leaders in communities on the ground, who are willing and prepared to make a difference in their own environment, may have a much greater impact than older leaders that work in traditional ways and occupations. Solutions for the youth need to come from the youth – therefor youth leadership development is key at all levels of the community – both business and social. To develop this opportunity to its fullest extent, it is important to understand and appreciate the current concerns, dilemmas, challenges, constraints, dreams, aspirations, and opportunities of the young people in this country. There are a number of leadership development initiatives in and around Cape Town which can be shared with towns currently at “lower levels of development”. “The recipe for economic growth is a simple one: governments need to get out of the way of their people. Arbitrary policies that raise the risks and reduce the expected returns from any venture or career path can fatally undermine the potential of a market system. The African continent today still provides too many cases of abusive, repressive and sometimes just incompetent leadership…”26

Three: Participatory Growth Enablers Participatory growth forums, platforms could be facilitated by business and/or community leaders who have been actively involved in successful initiatives elsewhere. These should not be just “talk shows” but have a workshop format, with clear outcome expectations upfront. Ideally young progressive leaders should be mobilised to participate and facilitate the roll out the resulting programmes on a community level. The Provincial Government of the North West has recently launched a number of provincial initiatives, however these may be focused more on a social and community based level, rather than make a considerable contribution to the economic growth and development of the whole municipal region. Business enablers, rather than only discussion forums, are what is required to make a difference. “talk shops” and “free lunches” will not achieve the outputs – we need implementers equipped with the tools and support of business enablers. (See the paper on the case study of Manizales-Mas, which identified and implemented 4 steps: Activate stakeholders; Align leaders; Establish execution platform(s) and proof of concept programs; Systemizing and expanding programs and local capacity.) More integrative work methods by government should be further explored, i.e. working towards common objectives in a multi-departmental cross-governmental manner – both in terms of planning and execution. Traditionally National–Provincial government collaboration, providing guidance, enablement and monitoring as well as Provincial–Local government guidance, enablement and monitoring – in both cases revisited in view of enabling greater and exponential economic growth.

26 Prof Brian Kantor, Get South Africa Growing, Jonathan Ball Publishers, 2017, page 78.

78

Four: Value Chains Multi-faceted complex systemic problems and challenges such as discussed in this research report, require multi-faceted systemic solutions. Business and agricultural value chains are powerful mechanisms for alignment of the contributions made by value adding role players, creating local development opportunities, with the added benefit of opening up market opportunities on a national and international level. The value chain concept, if explored and applied to its fullest extent and potential, is probably one of the most effective, valuable mechanisms to pull SMMEs out of a ‘lonely struggle to survive’ into an inclusive market place and thereby not only creating growth for themselves and jobs for others, but also making a sustainable contribution to the economy. It is a great concept which crosses functional, governmental, international and sometimes sectoral boundaries to optimize both value creation and value distribution – probably one of the most effective mechanisms to achieve inclusivity in a country such as South Africa that so direly needs it with its great and still increasing divide between wealthy and the poor. Its foundation is both about value (creating and distributing value – both for the self and for the greater economy) and values (promoting sharing, equity, ownership and sustainability). Value chains have been applied with great effect and success in many parts of the world, for many years, especially in developing countries, especially in agriculture, to bring small producers, farmers and business players into the marketplace. It is a concept widely promoted, supported and reported on by the OECD. Five: Transformational Maturity Model More defined research should go into exploring the developmental stages of both business, community and local leadership maturity for small and medium business development, sustainability and growth. Examples of emerging business maturity levels could typically be:

Survival

Sustainability

Growth

Flourish

Scaling up (replication, expansion of footprint, etc) Six: New Economic Pathways To address the complex dilemmas we face in this country, we need to break out of “old molds” into new economic pathways. Such pathways could include, for example, working systemically across governmental and other traditional linear boundaries. The City of Cape Town seem to have broken out of the linear mold by working in a multi-disciplinary, multi-function, intergovernmental (peer departments as well as different levels of government), inter-sectoral systemic manner, focusing on the “economies of the future”, such as the green economy. The exploration of the multi-million renewable energy direct investments being made in South Africa, is a bright new economic pathway to growth and job creation.

79

National government has identified the following enablers of the Green Economy: regulatory framework; market-based instruments; innovation, science and technology commercialization; greater localization and manufacturing; investment, finance opportunities and financing instruments including leverage of funds; availability of skills; institutional capabilities and capacity and partnerships. In the Western Cape these are picked up in the Green is Smart Green Economy Strategy Framework, where identified enablers include: finance; capabilities; knowledge and innovation; rules and regulation; and infrastructure. These cut across the 5 Smart drivers, namely: Smart living and working; Smart mobility; Smart eco-systems; Smart agri-production; Smart enterprise. The concepts of partnering, clustering, an eco-system for entrepreneurial development, and value chains, create the means to create new inclusive economic pathways, where the focus is on value creation in an inclusive manner. The drivers are the market places, which may exist or may need to be created still somewhere in the world. Our country has a wealth of natural and human resources and abilities, and strong institutional industry structures and organisations, both in the public and private sector. Why are we still struggling to make growth and development and job creation work in so many parts of this country? Perhaps the respective drivers are disparate, i.e. municipalities focus on compliance and survival, themselves being on a low level of institutional maturity. Many political leaders and their co-horts are focused on power and self-enrichment above all. Also, provinces do not have a mentality of sharing recipes for success across provinces, because of political pride or power. Socio-economic opportunities that lie in the green economy should be much more aggressively pursued. This is the opportunity that forms the foundation of the so-called SEE model – economic opportunity through ecological opportunity creating socio-economic benefits, at the same time not only protecting but restoring and rebalancing our planet. Seven: Clustering The concept of clustering (both from a governmental/institutional perspective as well as business sector clustering) should be introduced and applied more broadly, as an effective mechanism for structured collaboration, working towards common objectives, creating business development opportunities, not only to meet service delivery requirements, but also enabling a co-operative type of working environment for small businesses. Eight: Scalability of Success There are many success stories regarding growth enablers and initiatives in many parts of our country, in the Western Cape, and more particularly in the City of Cape Town. Such “recipes” should be scaled-up, through sharing and replicating. Nine: See Opportunities “Billions of people have by now crossed the absolute poverty threshold, the equivalent of about two dollars a day of current purchasing power. Billions will do so over the next 50 years if human endeavor and enterprise continues to be encouraged, as it has been, more or less, over the past half-century….. In the world at large, 702 million people fall below the poverty line in 2015…..The

80

percentage of the world’s population falling below the poverty line was 37 per cent in 1990 and has fallen to 9.6 per cent in 2015. This represents enormous economic progress.”27 An accelerated shift should take place from social dependency to SEE (socio-economic-ecological) opportunities for growth and development, where the component of the community that are dependent on social grants and support, are only the really vulnerable, following the creation of a stronger self-sustaining “middle class”, the “BOP (Bottom of the Pyramid)” triangle is transformed to a diamond: Rapid growth, however, should not happen at the expense of the environment, as this would inevitably “catch up” with modern man due to either the contamination or depletion of scarce resources. The ecological (green and sustainable) focus underlying economic development therefor is becoming a non-negotiable foundation of all enterprise. Ten: ICT Enablement The value and catalytic development possibilities that ICT opens up, especially in developing countries, will leapfrog years of otherwise lengthy evolutionary development. The EU funded business case drafted on ICT connectivity amongst the member states of the Indian Ocean Commission (IOC), and the OECD, should be considered and brought into this study. Eleven: The Bigger Pie Radical political movements claiming to represent a large part of the South African population believe that taking assets and equity from the few wealthiest white entrepreneurs and sharing it amongst the large number of black people, will be “radical economic transformation”. The point that is probably missed is that such entrepreneurs built up their enterprises over decades, through hard work and dedication, taking significant risks in the process, failing more than once, but getting back up and trying over and over again, then building up their enterprise through careful planning and sound business management. The tragedy of a perception of taking away the assets and capital from the few wealthiest white entrepreneurs, to share amongst the poorest, is that this would be a once-off “destruction of the current pie” that currently enables employment for thousands of South Africans. Rather than destroying so-called wealthy enterprises, which create jobs for a multitude of people, and help to keep the economy ticking, the poor should be built up – to start building the wealthy enterprises of the future. A bigger more inclusive pie should be created – a basic principle of economics all citizens need to be educated on.

27 Ibid, page 76,77.

High income individuals

Middle class

Poor really vulnerable

individuals

High income individuals

Middle class

Poor dependent individuals

81

Traditional structural, strategic and process oriented approaches to negotiation tend to share a distributive approach also termed a zero-sum approach. A distributive or ‘win-lose’ approach focus on negotiations where negotiators hope to ‘win a bigger portion of an existing pie’. Alternative approaches to negotiation, such as integrative approaches, first aim to ‘enlarge the pie’ so that all negotiating parties are better off. Twelve: Incubator to Full Flght A number of so-called Incubators have been applied with great success, mostly in the ICT industry sector, however, the concept and principles thereof should be further explored, especially in alignment with the levels of maturity of the particular industry, the particular business at stake, the community, as well as the business leaders involved. Some of the biggest criticisms, or reasons for failure of incubators and incubated businesses, are that they fail more often than not, once the incubation process is over. New incubator models need to be explored that can with greater success prepare emerging businesses for full flight. CONCLUDING REMARKS

The findings in this research are neither exhaustive nor conclusive, as it has not been an academic study. It was an exploration of a relatively broad scope of issues relating to the complex challenges of local economic development and youth job creation. It has opened up opportunities for much further study. Hopefully it has triggered some ideas and topics for more conversation, and provided some pointers to include in a report on policy development on how to address youth unemployment at scale in South Africa, and guidance for local actors and local interests. The final recommendations focused on approaches and enabling mechanisms to address the HOW questions of economic development and job creation at the local level. More often than not we know WHY we need this, and also often WHAT outcomes we want. The difference lie in the HOW are we going to make it happen.