A blue­print for bring­ing lo­cal economies to life SA needs to bol­ster eco­nomic de­vel­op­ment. What can be done to kick­start eco­nomic ac­tiv­ity in un­pro­duc­tive re­gions?

Finweek English Edition - - OPINION - Ed­i­to­rial@fin­week.co.za

southAfrica needs a rad­i­cal change in its ap­proach to lo­cal eco­nomic de­vel­op­ment. Be­yond so­cial se­cu­rity and cen­tral gov­ern­ment trans­fers, each district and lo­cal mu­nic­i­pal area needs a clear plan to at­tract in­vest­ment and cre­ate jobs.

Th­ese plans should ad­dress the two facets of eco­nomic so­phis­ti­ca­tion. The first is to in­crease the range of prod­ucts and ser­vices of­fered. Reliance on just one prod­uct or ser­vice should be re­duced. The sec­ond is an em­pha­sis on de­vel­op­ing own tech­nolo­gies and pro­cessed goods. Sell­ing a pig is one thing: de­vel­op­ing and de­ploy­ing tech­nolo­gies for pro­cess­ing pork prod­ucts to in­crease value is another.

SA can­not cre­ate sus­tain­able em­ploy­ment through its ex­ist­ing Ex­panded Public Works Pro­grammes. Th­ese in­volve the cen­tral gov­ern­ment fund­ing tem­po­rary low-skill jobs: fill­ing pot­holes, con­struc­tion, pick­ing up rub­bish, sweep­ing and even cler­i­cal work. The aim is to get peo­ple eco­nom­i­cally ac­tive. But th­ese pro­grammes are never linked to a process of skill for­ma­tion that pro­pels medium- to high-tech in­dus­trial ac­tiv­ity.

For any lo­cal econ­omy to be re­silient it must have the lo­cal skills – in­clud­ing those of an en­tre­pre­neur­ial na­ture – in suf­fi­cient quan­ti­ties to sup­port the cre­ation of lo­cal in­dus­tries. Th­ese can sup­ply prod­ucts and ser­vices to the sur­round­ing towns, neigh­bour­ing prov­inces and coun­tries. Sim­ply put, to grow a lo­cal econ­omy you must trade with the peo­ple who are clos­est to you ge­o­graph­i­cally and are not too ad­vanced tech­no­log­i­cally.

Scop­ing lo­cal mar­ket and re­gional op­por­tu­ni­ties

One ex­am­ple is the Ken­neth Kaunda District Mu­nic­i­pal­ity in the North West prov­ince. This area used to be the coun­try’s gold min­ing pow­er­house. To­day it boasts some of the high­est un­em­ploy­ment rates. Yet it houses the North-West Univer­sity’s Potchef­stroom cam­pus, which has substantial ca­pa­bil­ity in en­gi­neer­ing re­search and de­vel­op­ment. The min­ing in­dus­try and its value chain, al­though in rapid de­cline, leaves be­hind droves of ar­ti­sans, tech­ni­cians and en­gi­neers. Th­ese peo­ple could be har­nessed and re­fo­cused into high-tech ac­tiv­i­ties that sup­port au­to­ma­tion and mech­a­ni­sa­tion in other in­dus­tries. This in­cludes agri­cul­ture, agro-pro­cess­ing and the value chain of min­ing ar­eas in the neigh­bour­ing Plat­inum district, North­ern Cape, Botswana and Namibia.

The first step would be to con­sider which high-value ser­vices and prod­ucts can be sup­plied to th­ese ar­eas. The Plat­inum district re­lies on plat­inum min­ing and mi­grant labour. Botswana and Namibia rely on di­a­monds and low-tech beef farm­ing.

Im­me­di­ately, the Ken­neth Kaunda District can change its lo­cal eco­nomic de­vel­op­ment fo­cus to stim­u­late lo­cal en­trepreneurs who can pro­vide medium- to high-tech ser­vices and tech­nolo­gies that sup­port the value chains of th­ese neigh­bour­ing in­dus­tries. It can also help its own res­i­dents to par­tic­i­pate in emerg­ing knowl­edge-based in­dus­tries in part­ner­ship with for­eign tech­nol­ogy agen­cies and in­vestors.

Op­por­tu­ni­ties be­yond min­ing

There are plenty of op­por­tu­ni­ties be­yond the world of min­ing and its re­lated in­dus­tries. For ex­am­ple, the Univer­sity of Lim­popo in the Capri­con District has very good op­tom­e­try skills. It could of­fer an op­por­tu­nity to cre­ate an in­dus­try around the treat­ment of eye­sight and op­tics man­u­fac­tur­ing. Those ser­vices and prod­ucts could be ex­ported to the whole of South­ern Africa. At the mo­ment Malawi is lead­ing the way south­wards in the pro­vi­sion of op­tom­e­try ser­vices. The op­por­tu­nity I’m de­scrib­ing here is not just about train­ing and de­ploy­ing op­tometrists. It’s about de­vel­op­ing the en­tire value and sup­ply chain around cor­rect­ing and im­prov­ing hu­man vi­sion. This in­cludes in­fra­struc­ture, man­u­fac­tur­ing var­i­ous qual­ity and cheap op­ti­cal prod­ucts, lo­gis­tics and de­vel­op­ing ser­vice de­liv­ery points. The Univer­sity of Lim­popo can be at the cen­tre of it all just like Mas­sachusetts In­sti­tute of Tech­nol­ogy is at the cen­tre of sim­i­lar ini­tia­tives in the US.

A strat­egy for mar­ket lead­er­ship

A suc­cess­ful strat­egy en­tails trad­ing first with economies that are ei­ther be­low, on par or slightly ahead tech­no­log­i­cally. This means the lo­cal mu­nic­i­pal­ity’s eco­nomic de­vel­op­ment of­fice must seek to in­te­grate lo­cal com­pa­nies in both value and sup­ply chains of other high-tech neigh­bours. This would gen­er­ate medium- to long-term rev­enues. It would also cre­ate sus­tain­able hu­man and fi­nance cap­i­tal and in­crease chances for di­ver­si­fi­ca­tion.

Th­ese ideas have been used at a more ad­vanced level by South Korea in deal­ing with the US in the Sam­sung ver­sus Ap­ple com­pe­ti­tion and col­lab­o­ra­tion. Sam­sung started out mak­ing com­po­nents and phones for Ap­ple. It even­tu­ally be­came a re­al­is­tic con­tender for mar­ket lead­er­ship against Ap­ple in its home mar­ket, the US.

So a com­pany based in the North West prov­ince would be well ad­vised to tackle the op­por­tu­ni­ties pre­sented by its im­me­di­ate neigh­bours, both tech­no­log­i­cally and ge­o­graph­i­cally. The sta­ble rev­enues, skills, cap­i­tal and ex­pe­ri­ence gained in th­ese more ru­ral set­tings could later be used to cat­a­pult to more de­mand­ing mar­kets like the ur­ban hub of Gaut­eng and be­yond.

To grow a lo­cal econ­omy you must trade with the peo­ple who are clos­est to you ge­o­graph­i­cally and are not too ad­vanced tech­no­log­i­cally.

North-West Univer­sity’s Potchef­stroom cam­pus

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