5 keys for BCM to prosper

A complex, multi-pronged approach focusing on implementation, transformation and collaboration staved off a ratings downgrade for South Africa.

But we need growth to avoid a downgrade in December. Buffalo City Metro must play its role here.

It is increasingly evident that without economic leadership of our large metropolitan economies, SA as an economy itself will not grow. Cities are increasingly the engine rooms of the national economy. Cities also provide the surest, quickest route to poverty reduction.

Ongoing urbanisation and the growth of our cities should provide us with both an economic and social dividend. But we have to deliberately make the connection between urbanisation and industrialisation.

In Europe, US and East Asia, a virtuous circle has been created between urbanisation, industrialisation and increasing resources for infrastructure development. In contrast, in Africa and the oil-rich Middle East, urbanisation has been without industrialisation.

Resource exports drive urbanisation, with surplus national income creating “consumption cities”, where most economic activity is in non-tradable services.

SA cities risk falling into this category, becoming slum cities, not production cities.

Production cities have a large proportion of workers in the tradable sectors, and city-based productive enterprises grow on the basis of conducive urban conditions. The challenge therefore, is how to evolve consumption cities into production cities, necessarily through a process of capital accumulation.

Cities can provide enabling conditions for Africa’s industrialisation. Given SA’s relatively strong existing industrial base and relatively well developed network of cities, we must aim to remain at the forefront of Africa’s industrialisation. But our cities are not playing the catalytic role they should be to drive industrialisation.

Despite our massive public investments in housing and basic services, and despite ongoing population growth in our cities, our national economic growth rate (recently forecast at 0.1%) is subdued and levels of inequality are among the world’s highest.

In Buffalo City – which has had fairly moderate levels of population growth and has made good progress in providing universal access to services – economic growth rates remain subdued.

There are many reasons for this and the three spheres of government must work more closely to address growth constraints. We also need a mindset shift in how we plan.

Planning to date has been too short-term, often driven by political expediency linked to individuals in office. Economic restructuring must be consistently implemented over terms of government to be effective.

Five critical factors to place Buffalo City on a higher, more equal growth path are:

l Understanding where we have comparative advantage and unlocking this economic potential. Buffalo City has a relatively sophisticated manufacturing base built around the auto industry, but is also potentially competitive in other manufacturing sub-sectors. As home to the ELIDZ and a port, Buffalo City must be transformed into an export manufacturing hub.

This is not pie-in-the-sky – it already has world class export manufacturing capability, a large pool of skilled and trainable workers and a growing logistics system.

Key is better connectivity between Buffalo City, the Port of Nqgura and Johannesburg. We must also focus on revitalising industrial parks and successfully transitioning the ELIDZ into an SEZ. The collective leadership must ensure this happens in partnership with SOEs such as Transnet and the Industrial Development Corporation, and departments such as Trade and Industries.

We must protect our existing manufacturing base and build the competitiveness of current firms as we seek new investment in the automotive value chain, agro-processing, light manufacturing, ship repair, renewable energy, services and tourism.

To be competitive as a local economy, Buffalo City must also focus more on reducing the costs of doing business. Last year we benchmarked the costs of doing business in BCM against eight other urban centres. BCM performed at the level of an average metro, not the best or worst.

The survey found that SA entrepreneurs face different regulatory hurdles depending on where they set up their businesses. The results suggest that well-targeted administrative improvements that do not require legislative changes can make a difference for small or medium-sized firms.

If each metro adopts the good practices found over the nine cities for construction permits, getting electricity and enforcing contracts, they will surpass the average performance of high-income Organisation for Economic Cooperation and Development members.

•  Second is transforming the apartheid city and building the township economy. The most central local constraint to growth is the spatial form of the city itself. SA cities are highly segregated and fragmented – a direct legacy of apartheid. Almost half of the country’s urban population lives in townships and informal settlements. They are mostly isolated from urban amenities and lack good infrastructure, public facilities and commercial investment. Our townships were designed to fail and this can clearly be seen in BCM.

Township economies are also highly undiversified and marginalised, and a small proportion of earnings are actually spent in these economies. Economic activities are mostly limited to retail trade, government services and transport. Residents must also spend over 20% of their declared household income on transport, and as much as 50% or more for residents with lower incomes.

We need to integrate townships into the city fabric by improving connectivity through land use and transport; targeting investment in viable nodes and hubs; and removing local constraints in terms of land use management, development control, tenure security and by striking a good balance between formal and informal economies.

• The third area of focus should be transformative infrastructure investment. Considerable activity is taking place, including energy, bulk water and sanitation, human settlement and urban transport projects.

Government must focus on a results oriented programme of infrastructure investment prioritisation as well as economic development programmes to share the urban dividend with township residents.

This will require better appreciation of local assets and how to make these work in your interest; engaging and leveraging SOEs such as Transnet, Sanral, etc; creative use of public investment and funding to catalyse and attract private and community investment; unlocking land parcels for public and private development; taking advantage of National Treasury’s review of infrastructure grants to develop a long term project pipeline around which private investment can be mobilised; and putting new regulatory frameworks in place to enable such partnerships.

• The fourth area of focus is youth development. Nowhere is the vulnerability of the youth more evident than in the labour market. In SA the under 35-year-olds constitute about 66% of the total population with 24% – or 13-million people – in the 15 and 24 year category.

A youthful population can be a positive for unlocking growth and development potential (the so-called youth dividend). There is strong international evidence to suggest it is the youth who are the most innovative, the most risk taking and entrepreneurial, and as new entrants into the economy, the most likely to stimulate both productivity and demand. But with growing structural unemployment and an economy stuck in a low growth trap, the youth dividend can turn into a youth burden.

Youth unemployment in SA in the 15-24 year bracket is 52,6%. Almost seven out of every 10 unemployed people are youth. Fixing our youth unemployment crisis requires accelerating economic transformation towards a more inclusive and jobs-intensive growth path, as well as addressing our education challenges.

This requires improving the pace of the transition from school to work. Jobs Fund supported initiatives such as Harambee – a youth employment accelerator programme which has already placed 30000 youth in jobs – must be brought here to Buffalo City.

In the SA experience, skilling outcomes have been compromised by the sub-optimal performance of SETAs, as well as the sub-optimal uptake of learnerships and apprenticeships by private sector firms.

New incentives (such as tax allowances) must to be looked at to radically increase learnership and apprenticeship uptakes.

Youth also need to be streamlined towards entrepreneurship. Key here is more inclusive innovation and a technology transfer, special support for start-ups through youth incubators; product development and market readiness support; and targeted financial support with customised instruments from DFIs and private banks.

Regulatory constraints that limit SMMEs and prohibit transitioning from informal to formal enterprise must be addressed as a priority by BCM in partnership with other spheres of the state.

• The fifth area is city governance. Metros must step up to their leadership role in both public sector alignment and forging social partnerships.

Good governance is critical. No-one will invest in a local economy where integrity issues are consistently questioned. By having more credible and accountable political and administrative leadership that consistently champions clean governance and service delivery, we will not only change citizen perceptions but unlock investment from the private sector, state companies and broader fiscus.

BCM also needs to focus more on the new capabilities it must acquire and/or leverage in order to become a real economic player.

In the light of current fiscal constraints, a new approach to infrastructure budgeting – that is both long term and able to syndicate municipal own revenue, national transfers, SOE allocations, as well as private investment – is necessary. These complex transactions require that metros become more enterprising and innovative than before.

In conclusion, this is not the time for general ideas or grand schemes, but urgent action. BCM has a growth and development strategy which is well-planned towards integrating and growing the city. In order to ensure the best deal for households, firms and government, it is crucial that this momentum is carried forward in partnership with other spheres of government, the private sector, universities and citizens.

Mcebisi Jonas is Deputy Minister of Finance. This is an edited extract of his speech in Gonubie on Friday evening