Taking growth to the rural areas needs all agencies to play a role
• Unsustainable urbanisation can be resolved by properly co-ordinated special economic zones
It is hard to imagine that a programme led by the Department of Trade and Industry (DTI) to drive industrialisation could be the solution to Cape Town’s skyrocketing house prices, but it just might be.
At a business breakfast in Atlantis earlier this week to discuss the DTI’s rural and township industrial development programme, I was given hope that there could be a real solution to economic inequality in SA — and to the level of urban house prices, which are a very real part of that. The even better news is that it seems there may finally be sufficient political will to make it happen.
Trade and Industry Minister Rob Davies and his department have for several years been working on trying to decentralise industrial development and support rural and township economies, but with limited success. Programmes such as the revitalisation of industrial parks and special economic zones (SEZs) have struggled to achieve the desired outcomes because they only go halfway in providing the necessary incentives for business.
This is not the fault of the DTI, but rather the result of a lack of support and co-ordination from other departments that are required to pull in the same direction if the DTI’s incentives are to be truly attractive to business. For example, the existing SEZs might attract large investments that are able to adequately leverage the incentives that are offered, but the social infrastructure — such as quality schools, healthcare and community activity — that makes it possible to attract smaller businesses is often lacking.
The problem is that the failure of these programmes and the lack of cohesive industrial policy in general has resulted in the market making the decisions – with often undesirable results. One of those results is that over the past 20 years industrial development has primarily occurred in urban areas, accelerating urbanisation and exacerbating the problems associated with it. Sky-high house prices are part of this.
Rapid urbanisation is a global trend that sees about 1.5-million people around the world moving into cities every week. According to the UN, more than half of the world’s population already lives in urban areas and this is expected to increase to 60% by 2030.
As South Africans what should concern us is the fact that 90% of this urban population growth is expected to take place in African and Asian cities. SA’s population is already highly urbanised, with almost twothirds of the population living in a town or city. This places huge strain on infrastructure and services, and also on job creation and the environment.
As people flock to the cities, demand for housing increases, putting pressure on real estate prices and making it increasingly worthwhile for developers to turn inner-city or formerly industrial areas into mixed-use or residential areas.
This is startlingly apparent in Cape Town, where former light industrial areas such as Salt River and Woodstock have become bona fide residential suburbs — property prices have quadrupled in a decade.
SA is not alone in this phenomenon. Housing is becoming increasingly expensive all over the world, especially in the developing world. According to the Bloomberg Global City Housing Affordability Index, housing affordability in the developing world is even worse than the housing crisis in expensive cities such as Hong Kong, London and Melbourne.
In terms of average income, the most expensive cities in North America and Europe are far more affordable by comparison. An influx of people into developing-world cities over the next 10 to 20 years will see house prices rise even further.
So what is the solution? SA has sound industrial policies and programmes in place, but we need to make sure they are implemented and supported on all levels. Encouraging industrial development in rural areas will alleviate the pressure on urban areas and create much-needed employment in regions where job opportunities are scarce, but financial and regulatory incentives alone are not enough. For people to be more strongly attracted to rural areas than to urban hubs they need to know not only that there are better job opportunities, but there are also opportunities to live and start their own businesses.
Similarly, to create jobs and foster economic development in townships, the government needs to create an enabling social environment as much as it needs to create an enabling business environment. The World Bank estimates that half of SA’s urban population – about 22-million people — live in townships and informal settlements. This accounts for 38% of working-age citizens, but also means townships are home to nearly 60% of SA’s unemployed.
I am well aware of the many problems with a centralised economy, and be assured that this is not what I am suggesting.
What I am suggesting is that if we want to mitigate the social, economic and environmental consequences of rapid urbanisation, the government needs to ensure that alternative business decisions are enabled by all departments – not just the DTI.
If the government is serious about redirecting the geographical development of business and industry, it needs to look at the big picture.
Over the next few months there will be more of these meetings between stakeholders ahead of a national summit on the rural and township economy, and I hope those who attend speak freely about the real challenges faced by small and medium-sized businesses.
THE GOVERNMENT NEEDS TO ENSURE THAT BUSINESS DECISIONS ARE ENABLED BY ALL DEPARTMENTS