"Cooperative partnerships to stimulate and grow local economies and small, medium and micro enterprises (SMMEs)"
Together we need to take local economic development more seriously
Allow me in the first place to say how pleased I am to be here today. You are a very important organisation. And I am here to both offer some information and ideas as well as to learn from you. So please engage with me vigorously and rigorously.
Let's see this meeting as a two-way process. Government and the majority party, after all, don't have all the answers. And you could be of enormous help. Yes, yes, it may sound like a cliché, I know, but together, we can, of course, do more. In any case, government and business have to work together. We have no choice. This is the case more than ever before.
And this is certainly the case with local economies and local economic development (LED). Not just because of the impact of the global economic crisis on our country. Not just because over a million jobs have been lost. Not just because our growth rates are sluggish, but also because we are committed to building a developmental state. Because we now have a National Planning Minister and an Economic Development Minister who both are about to establish a National Planning Commission, because our all important local government turnaround strategy (LGTAS) stresses the importance of local economic development; because we are determined to strengthen the cooperative governance system across national, provincial and local government.
All of which signals greater opportunity for local economic development and more effective partnerships between the private sector and municipalities. If there are many lessons we've had to draw from the global economic crisis that has fallen on us, one at least is the importance of local economic development.
And if we're talking about "cooperative partnerships to stimulate and grow local economies and SMMEs", as it applies to our ministry, essentially we're talking about local economic development. It is this then that I'll primarily focus on. And if there's a theme to what I am saying it is: "Together we need to take local economic development more seriously".
In our department's 2006 framework on local economic development, we noted:
"The private sector, the cooperative sector consisting of formal and informal, social enterprises, as well as the income generating community projects and survival businesses in the informal sector, that operates in municipal regions are the engines of economic growth. Their existence and ability to produce competitively and generate greater levels of income and employment is dependent on an active state role in generating the appropriate and necessary conditions, stimulus and governance efficiencies and in constantly monitoring the results".
By identifying the private sector, social enterprises and informal businesses operating in municipalities as the engines of economic growth, government is stressing the significance of local economies to economic growth. It is clear, though, that for this engine to function effectively, the state has to play its role. And yes, we agree we are not doing enough.
But we intend to. And with your cooperation, we will. Especially you. You are progressive business people. We take seriously what you say and we expect you to be dynamic and far sighted.
What is local economic development?
So what, in short, do we mean by local economic development? Essentially, local economic development refers to the cooperation of municipalities, business and civil society to ensure economic growth, job creation and development in a municipal area. The "local" in local economic development serves to highlight the importance of the political jurisdiction of local government as a major site of economic intervention. It is an approach to development that places importance on the activities in and by municipalities or, if you like, the local state.
A 2000 local economic development manual of our department notes that "local economic development is an outcome based on local initiative and driven by local stakeholders. It involves identifying and using primarily local resources, ideas and skills to stimulate economic growth and development. The aim of local economic development is to create jobs, alleviate poverty, and redistribute resources and opportunities to the benefit of all local residents".
Basically, it's based on the notion that municipalities must foster the conditions for business to grow the local economy and business must advance its own interests while simultaneously contributing to the development of the local community. Of course, business must get profits. But the local community must benefit too. The two imperatives are not mutually exclusive. Managed properly both imperatives can be adequately met.
By creating an environment conducive for entrepreneurs to thrive, a municipality can benefit through higher levels of income for its residents and an expanded base for the collection of rates and service fees. The private sector, in turn, can benefit from the returns on their investments and increased demand for their goods and services as a result of a growing local economy.
So at the heart of the local economic development is the notion that through collaboration and partnerships between stakeholders within a local area, the resources within that specific area could be exploited for the benefit of all. There isn't a single approach to local economic development that will work in every municipality. Each municipality must develop its own local economic development, identifying its competitive advantages. For example, one municipality may be able to use its harbour as a key aspect of its local economic development strategy, another its tourist features, and yet another, its fertile land.
An important part of local economic development is the growth of local businesses and SMMEs. Local economic development must foster the growth of cooperatives. Local economic development also entails empowering local community members with the necessary skills to participate in the economy.
Local economic development must also serve to encourage domestic and foreign investment in a local economy. For local economic development to be effective, it must be linked to national economic policies, strategies, plans and programmes. Local economic development must also contribute to building the capacity of municipalities to provide quality services to the people.
Our 2006 local economic development framework set out the aims of local economic development as:
* To shift towards a more strategic approach to the development of local economies and overcome challenges and failures of municipalities themselves trying to manage a litany of non-viable projects or start-ups
* To support local economies to realise their optimal potential and make local communities active participants in the economy of the country
* To elevate the importance and centrality of effectively functioning local economies in growing the national economy
* To wage the national fight against poverty more effectively through local level debates, strategies and actions
* To improve community access to economic initiatives, support programmes and information
* To improve the coordination of economic development planning and implementation across government and between government and non-governmental actors
* To build greater awareness about the importance and role of localities and regions which globally are playing an increasingly significant role as points of investment facilitated by supportive national policies.
Local economic development as part of the national economy
Effective local economic development can make a significant contribution to the national economy. It is noteworthy that SMMEs contribute 35 percent to the gross domestic product (GDP) and together with the informal sector 50 percent. The challenge is for municipalities in cooperation with national and provincial government to create more space for the development of SMMEs and informal businesses.
Local economic development is very much a function of municipalities. After all, we have a developmental local government model. And specifically, section 152 of the Constitution requires local government "to promote social and economic development". Unfortunately, however, in schedules four and five of the Constitution, local economic development is not specifically mentioned as a functional competence of local government.
This needs to be attended to in the review of the powers and functions of the spheres of government that is being processed by government. In a sense, municipalities inevitably play a role in local economic development. They employ people, buy goods and services, develop infrastructure and regulate the development of land. All of this, of course, impacts on the local economy.
Local economic development is meant to be an important part of the integrated development plan (IDP) of a municipality. And the local economic development plans of a municipality are meant through the IDPs to be linked to the provincial growth and development strategies. With the development of a national plan through the National Planning Commission and cabinet, local economic development will become better integrated into the provincial and national economies.
As highlighted in the local economic development framework, municipalities are encouraged not only to align their local economic development strategies and programmes with the national economic objectives and programmes, but to also serve as the point of integration for economic development initiatives by all spheres of government within their respective jurisdiction.
Since 1994, several key policy documents of government, such as the Reconstruction and Development Programme (RDP) and the integrated sustainable rural development strategy (ISRDS) placed emphasis on the role of local economies in stimulating growth and development in the country. The local government turnaround strategy (LGTAS) also highlights the need for local economic development. One of its goals is defined as to: "Enhance the municipal contribution to job creation and sustainable livelihoods through local economic development".
The industrial policy action plan recently adopted by Cabinet recognises the importance of municipalities as enablers in industrial development and the need to stimulate local economies by supporting the development of key sectors in local areas.
Department of Cooperative Governance and Traditional Affairs has been working mainly with the Department of Trade and Industry on local economic development on enhancing the role of the mall Enterprise Development Agency (SEDA) and other relevant agencies in promoting local economic development in municipal areas, linkages between the industrial policy framework action plan and local economic development plans and the development of cooperatives in municipalities. This partnership will be extended to the Economic Development Department in view of its new mandate which includes local economic development.
Another key element of the department's local economic development policy framework is the provision for leveraging on infrastructure development by all spheres for government to create more jobs for local people. When we speak of local economic development, we do not only refer to urban municipalities.
We are clear that as long as we don't develop our rural economies, we will not be able to stem the continued migration of people from rural to urban areas. We recognise that we need a different approach to economic development in rural municipalities.
Together with other departments, we are looking at innovative ways of encouraging significant economic activity in rural municipalities. We have initiated the "Small Towns Regeneration" project to support the regeneration of small rural towns. We are aware of our responsibility to create an enabling environment for the private sector to invest in rural municipalities.
We recognise that this calls for bold and decisive leadership which may require legislative and policy reforms. We need to look at the possibility of establishing incentive schemes and programmes that will attract private sector investment to rural municipalities. We also need to prioritise development of infrastructure in order to stimulate economic growth in the rural towns and areas. We need to work with you to develop policies and plans in this regard.
Amendments to the Cooperatives Act are being proposed by the Department of Trade and Industry. The amendments seek to optimise the support services offered to cooperatives including through the establishment of a cooperatives agency and cooperatives academy. As businesses you need to participate in the public hearings that will be held by parliament in due course.
Business getting involved in local economic development
We accept that municipalities are not doing nearly enough to foster local economic development. Nor are national and provincial government helping enough, despite all our wonderful policy documents. We need to do more and we will. But by your actions you can significantly advance progress on local economic development.
In the first instance, you have to acknowledge that as businesses you cannot function effectively unless your municipalities work. Electricity, water, sanitation, waste management, refuse removal, traffic control, without adequate such services, how can a business function effectively? As businesses you have a vested, endemic interest in strong municipalities. Through the local government turnaround strategy, you can play an important role, together with other stakeholders, in strengthening local government. And you should.
Where municipalities are very weak business needs to play an active role in assisting them. We have initiated a project called "Business Adopt A Municipality", which encourages both small and big businesses to support weak municipalities to address mainly their economic development and infrastructure challenges. Business in turn will reap benefits from this in the longer term.
You need, clearly, to be more active in your municipalities. It's in your own interest as business and it’s in the interest of municipalities. The more credibility you build the more you will be able to have a say in your municipalities local economic development and other plans and activities. Many municipalities have a local economic development forum for stakeholder participation in local economic development strategy development and implementation.
Business and community organisations participate through representative bodies like business chambers, non-governmental organisations (NGOs) and community based organisations. But it's important that as individual businesses you also become involved.
As you are businesses in Cape Town, you need to note that the metro has developed a revised economic development strategy. The strategy focuses on medium term key priorities and programmes for the coming five to 10 years. The underlying theme for the municipality's strategy is "creating a competitive city". Its main objective is to pursue international competitiveness whilst addressing the inequalities among the residents.
The strategy focuses on the following:
* Positioning Cape Town as a globally competitive city with a strong bias towards SMMEs
* Positioning Cape Town as a global knowledge and innovation hub
* Strengthening key sectors such as the creative industries and tourism
Encouraging niche innovative industries such as small scale manufacture of solar water heaters, installers of renewable energy components and independent power producers
* Strengthening the relationships with the research and learning institutions as sources of more appropriate skills to meet the growing demands of the Cape Town economy (such as project management, information and communication technology (ICT), web development and new media)
* Targeting interventions in the informal settlements to create tangible economic opportunities
* Implementing area-based interventions, including nodes and corridors, with integrated transport, land use and services including local economic development opportunities.
As part of government's Urban Renewal Programme, Mitchell Plain and Khayelitsha were identified as nodes for development, particularly local economic development. You need to engage with the Cape Metro and get involved in its local economic development activities and the Cape Metro needs to draw you in.
In whichever municipality you are, you need to have an activist approach. You need to be for and far sighted. You can play a considerable role in local economic development in your own interest and your community and country's interests. That's why you are in the Progressive Business Forum and that's why I keenly engage you.
Thank you.
Issued by: Department of Cooperative Governance and Traditional Affairs
23 April 2010
Source: Department of Cooperative Governance and Traditional Affairs (http://www.cogta.gov.za)
