DRAFT REGIONAL INDUSTRIAL DEVELOPMENT STRATEGY

PRESENTATION TO TRADE AND INDUSTRY

PORTFOLIO COMMITTEE

2 AUGUST 2006

CAPE TOWN

STRUCTURE OF PRESENTATION

• PROBLEM STATEMENT– Spatial distribution of Gross Value Added– Growth disparities– Unemployment trends

• WHY THE REGIONAL INDUSTRIAL DEVELOPMENT STRATEGY– Composition and growth of economic activity– Growth in Gross Geographic Value Added

• RATIONALE FOR RIDS• STRATEGIC INTENT• PRINCIPLES FOR RIDS• BROAD APPROACHES TO REGIONAL DEVELOPMENT• GENERIC VS TARGETED INTERVENTIONS

– Targetered interventions “our approach”• BUILDING SYSTEMIC COMPETITIVENESS• RIDS SUPPORT MEASURES

PROBLEM STATEMENT

• Sharpest regional disparities at present are between the three main metropolitan complexes and the rest of the country

• Three broad categories of regions are considered, these will be applied in determining potential impact scenarios for the RIDS:

i. the three metros

ii. middle-order regions – combinations of magisterial districts selected because they contain main service hubs of a wider functional region or macro-region

iii. main production complexes of a cluster or corridor of inter-related industries

PROBLEM STATEMENT (cont.)

• RIDS recognises the inequalities still present within the country’s most successful economic regions, and thus seeks to promote the consolidation and improvement of the economic potential of these regions

• Creation of what were often unsustainable industrial development points, will require concerted efforts to redress economic and perceptual imbalances and pursue more balanced development

SPATIAL DISTRIBUTION OF GVAper 50km Mesozone

The map below shows the heavily biased distribution of economic activity in South Africa with the majority of Gross Value Added

(GVA) clustered around three major metropoles

Map prepared by CSIR Built Environment for NSDP 2006 (Presidency, South Africa) and RIDS (dti), May 2006

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Total GVA per 50km (Rand)0 - 5 mil5 - 10 mil10 - 15 mil15 - 30 mil30 - 45 mil45 - 65 mil65- 90 mil90 - 130 mil130 - 190 mil190 - 250 mil250 - 330 mil330 - 430 mil430 - 550 mil550 - 700 mil700 - 1 bn1 bn - 1.3 bn1.3 bn - 1.6bn1.6 bn - 2.2 bn2.2 bn - 3 bn3 bn - 4 bn4 bn - 6 bn6 bn - 9 bn9 bn - 30 bn

TOTAL GVA 2004Source: REX version 2.0c (190)Economic Focus: 2004GVA-current prices, based on SA Mesoframe

Distribution of economic activity based (South Africa, 2004)

100 0 100 200 300 Kilometers

N

2

our future through sience

District Councils

Provinces

Main Roads

LEGEND

Distribution of Economic Activity, Based on GVA (2004), SOUTH AFRICA

GROWTH DISPARITIES…(%GDP)

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

WC % GGP EC % GGP NC % GGP FS % GGP KZN % GGP NW % GGP GP % GGP Mpumalanga% GGP

Limpopo % GGP

2000

2001

2002

2003

2004

UNEMPLOYMENT TRENDS

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

WCunemployment

rate (%)

ECunemployment

rate (%)

NCunemployment

rate (%)

FSunemployment

rate (%)

KZNunemployment

rate (%)

NWunemployment

rate (%)

GPunemployment

rate (%)

Mpumalangaunemployment

rate (%)

Limpopounemployment

rate (%)

2000

2001

2002

2003

2004

• Inequalities within the space economy

• Restructuring the apartheid regional industrial policy

• Overhaul of top-down regional development planning-that exclusively focused on manufacturing

• “Space” or regions increasingly becoming a factor of production

• Growth in industrial poles not trickling down

• Create partnerships to promote regionally-based economicdevelopment strategies in the systematic and formalised manner

• Create convergence in investment programming and development planning between different local actors

WHY THE REGIONAL INDUSTRIAL DEVELOPMENT STRATEGY (RIDS)

Growth in GGVA at Constant 2000 Prices (2000 to 2004)

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Aver

age

Annu

al %

Cha

nge

Western Cape

Eastern Cape

Northern Cape

Free State

Kw azulu Natal

Gauteng

North West

Mpumalanga

Limpopo

RATIONALE FOR RIDS Vision: to ensure all regions attain their full economic potential, by addressing

blockages and barriers to the effective operation of the market

The RIDS is intended to:        

• achieve the national industrial development objectives (taking into account National Spatial Development Perspective (NSDP)

• further the goals of the Accelerated and Shared Growth Initiative

for South Africa (ASGISA), through accelerating growth

development in regions

• enhance and build capacities and potentials as identified in the

NSDP

• address spatial economic growth constraints and deal with market failure related to industrial development in municipalities,

• close the gap in the contemporary policy framework

• build regional competitive productive capabilities, that enhance regional economic performance

STRATEGIC INTENT

• Localised direct support to the SME sector using technical assistance funds

• Creating a predictable regional investment and business climate to attract private sector investments

• To increase production in, and improve competitiveness and diversification of,regional markets with potential for export and employment creation

• Strengthen appropriate infrastructure support to regions

• Build effective industrial, trade and productive capacity

• Encourage all regions to attain their full economic and development potential

• Encourage the enhanced growth and development of already succesful regions

PRINCIPLES FOR RIDS

The RIDS is informed by the following:

• Principle of an activist state

• Principle of a developmental state – promoting developmental industrialization

• Principle of reciprocity – support of sectors that will help achieve governments developmental agenda

BROAD APPROACHES TO REGIONAL DEVELOPMENT

CRITERION TRADITIONAL APPROACH Contemporary Approach

CONCEPTUAL BASIS

Key factors

Regional attributes i.e. production costs & availability of workers

Regional capabilities i.e. innovative milieu, clusters & industrial networks

POLICY CHARACTERISTICS

Aims

Objectives

Equity or efficiency

Employment creation & increased investment

Geo-spatial equity, efficiency and capabilities

Increased Competitiveness & employment creation

KEY INSTRUMENTS Incentive schemes, business aid &hard infrastructure

Local growth coalitions, regional road maps, business environment & soft infrastructure

POLICY STRUCTURE

Spatial focus

Analytical Base

Problem areas

Designation indicators & Regional exporting

All regions

Regional SWOT analysis

EVALUATION

Outcomes

Measurable Very difficult to measure

GENERIC VERSUS TARGETED INTERVENTIONS

• An important issue in RIDS relates to whether government should target either:

– Generic Approach i.e. trying to improve the overall investment conditions for private companies. They include geographic location, availability, quality and cost of factors of production, taxes and incentives or,

– Targeted Approach, i.e. addressing limited number of industries

• Generic interventions are generally covered in the existing macro and micro-economic strategies

• With the success of a number of generic interventions, the RIDS will focus strongly on targeted interventions

• Targeted interventions typically address two elements, namely, production factors and market failures

• A targeted intervention under the RIDS umbrella would aim to:– Build and upgrade advanced and specialized

factors for a local sector or cluster focusing on skills development, technology extension and metrology

TARGETED INTERVENTIONS “OUR APPROACH

Developmental orientation of society

Building Systemic Competitiveness

Meso level

Macro level

Meta level

Micro level

Efficient firms Collective efficiency and innovation networks

Tech

nolo

gica

l

OrganizationalSocial

Simultaneous engineering

import / export

regional

environmentalindustrial structure

technology

educationinfrastructure

trade policyfiscal policy

budgetary policy

currency policymonetary policy

competition policy

Stable macroeconomic, political and juridical framework

Inno-vations

Targeted policies to strengthen the competitiveness of certain

sectors

labor

learning- and change-friendly value attitudes

competitive pattern ofeconomic organization

ability to formulate strategies and

policies

social cohesion

collective memory

RIDS SUPPORT MEASURES

* subject to authentication and confirmation by the feasibility reportSource: Team analysis

Themes*

Iinterventions

Build Partnerships

Economic

Decline

– Regional Growth Coalitions

– Regional Industrial Road Maps

– Regional Indicative Business Plans

– Regional Growth Protocols

– Investment Packages– Regional Development

Plans

– Business Retention and Expansion Strategy

– Local beneficiation strategies

– Local Government Industrial Analysis Capacity Building

• ISRDP and URP project support facility

• Rural Contact Centres

- Early warning systems- BRE Capacity Building

Facility

- URP & ISRD Project Diagnostic tool

- Training programme for municipalities

- Capacity building programmes for municipalities

Funding (Rm)

Outcomes

RIDS SUPPORT MEASURES

* subject to authentication and confirmation by the feasibility reportSource: Team analysis

Themes* Interventions

Building

Regional

Agglomerations

– Regional Industrial Infrastructure Backlogs (Research)

– Industrial Clustering Strategy

– Special Economic Zones

• Industrial Development Zones

• Industrial Parks• Logistics / Supplier

Parks• Industrial Estates• Innovation Hubs• Spatial Development

Initiatives (SDIs)• Primary and

Secondary Corridors• Industrial Complexes• Industrial Clusters

– Regional Development Fund

– Industrial Clustering Capacity Building Fund

– Dedicated Incentives– Legislation– Institutional

Framework

Funding (Rm)

Outcomes