Address by the MEC for Economic Development and Tourism, Mr Michael Mabuyakhulu, on the occasion of the KwaZulu-Natal Local Economic Development Summit held at the Inkosi Albert Luthuli Convention Centre (Durban)
14 Nov 2011
The MEC for Agriculture, Environmental Affairs and Rural Development, Mrs
Your Worship the Mayors Present;
Senior Government Officials Present;
Our social partners present;
Ladies and gentlemen;
All protocol observed.
On behalf of the government of KwaZulu-Natal, we wish to express our appreciation for the fact that you have heeded our call, as social partners, to converge over the next two days to discuss ways and means in which we can collectively achieve the objective of putting the concept and practice of local economic development at the epicentre of our growth and development discourse.
Director of proceedings, it is a matter of common cause that ours is a democratic dispensation that is just a mere 17 years old. Practically, we are still in the early years of our collective campaign to build a cohesive and all-inclusive society characterised by prosperity, peace, equality and stability.
In defining the kind of state that would best deal with the challenges emanating from our past yet able to ensure our global competitiveness, our leaders decided that ours should be a developmental state. This would be a state that, while definitely not a welfare state, would make critical interventions in order to ensure the attainment of the objective of equality but also to ensure that our country is able to hold its own among the nations of the world in all the endeavours where it would want to participate.
Put in other words, the objective would be to build a state in which all social partners would play their role within the broader context of achieving a society of our dreams.
In this regard, as government, it is our view that local economic development should be one of the critical focal points of our efforts to build this society of our dreams. Precisely because all growth and development, which is key to our envisaged prosperity, happens at a local government space, we felt, as government, it is important that we have this summit whose major outcome will be the crafting and adoption of a provincial roadmap for local economic development.
Allow me programme director to share with you the World Bank’s definition of local economic development:
“The purpose of local economic development (LED) is to build up the economic capacity of a local area to improve its economic future and the quality of life for all. It is a process by which public, business and nongovernmental sector partners work collectively to create better conditions for economic growth and employment generation”.
Clearly, from this definition, local economic development is not a task of only of the local sphere of our government, but all social partners as well as all spheres of government.
Programme director, for obvious reasons, our input will be contextualised from the perspective of economic development. The fundamental mistake, we believe, that many experts make when it comes to the approach and contextualisation of local economic development is that it is local, that it is about minute and inconsequential economic projects and/or interventions that are confined and have impact on a small geographic area. Nothing could be further from the truth.
Local economic development is about the prospects and the vibrancy of a country’s economy.
Having accepted this fact, no discussion can take place about local economic development without considering the state of the global economy.
The global financial crisis that began in the US is now firmly embedded in the Eurozone. The financial crisis was driven largely by unsecured speculative `reckless’ lending and greed and corruption of certain Western based bankers and states. The speculative bubbles that emerged and subsequently burst, plunged the world into recession in 2008. Global recovery from this recession, despite the various taxpayer bail-outs of the Banks has been stagnant to slow and there are fears that the current Eurozone financial crisis (in Greece and possibly followed by Ireland, Italy, Spain and Portugal) will lead to a `double dip’ recession from which the global economy will struggle to recover from.
Opinions and views on how to address the financial crisis vary. While some have argued that the banks should be allowed to collapse, others have argued that these banks must be bailed out by tax payers. The risks of either option are unknown. While some economists argue that interest rates should be lowered further (to stimulate consumption and investment) others argue that interest rates should be increased to stimulate savings and investment.
Yet others have argued that there should be a focus on those who are poor and who have borne the brunt of the negative impacts of this crisis and that views on resolving the crisis should stem from the perspectives of the interests of the poor and unemployed.
No matter what the perspective, it is certain in these times of global uncertainty that the world economy is in unchartered waters, and that the once `stable’ and developed economies of the world are no longer. It is also certain that the role of state in the economy will change and that resources available to the state are finite and must be used judiciously and productively.
Interestingly, particularly for the developing world, there has been an observation of a trend where the global investors have trained their focus on the developing world and emerging economies as preferred investment destinations.
In fact, according to the United Nations Conference on Trade and Development’s (UNCTAD) Global Investment Trends Monitor (GITM) which was released three weeks ago: “Developing and transition economies absorbed more than half of global FDI flows in the first half of 2011, as they had in 2010, as transitional corporations continued to direct their investment to emerging markets. Developing countries experienced a further four per cent decline in FDI in the first half of 2011.”
This development, taken together with other developments, including South Africa’s participation in Brazil, Russia, India, China and South Africa (BRICS) the mooted regional economic integration by Southern African Development Community (SADC) scheduled to start in 2015; the creation of a Free Trade Area involving SADC, East African Community (EAC) and Common Market for East and Southern Africa (COMESA) as well as our participation in India Brazil South Africa (IBSA), means that, as the developing world, we are on the cusp of unprecedented economic growth. However, for this envisaged growth and prosperity to become a reality, we need to be ready to take advantage of the opportunities that have been presented to us.
Since we have agreed that economic development happens and is driven at a local government space, it goes without saying that our ability to harness the opportunities presented by the obtaining global economic situation will depend on how resilient our local economic development initiatives are. There are, therefore, among many other issues, two fundamental and related questions that this Summit must be respond to:
Are our local economic development structures ready to take advantage of the global economic conditions that favour us as the developing world?
Can we use the obtaining conditions to build resilient local economies?
I think that if we are to be brutally honest, there is a lot of work that still needs to be done to ensure that our local economic development approaches can take advantage of the opportunities currently presented by the obtaining global economic situation. This Summit, therefore, is about us seeking answers to these and other questions.
Programme director, while the world confronts the contemporary global financial crisis and climate change, production and distribution of globally traded goods and services continues to evolve. There is no doubt that the world economy has become a smaller place. Firms, people and factors of production transcend and are mobile across national boundaries. Production and consumption is globalised.
This is driven by a variety of factors including the hunger for resources and profit, the development of new and expansion of existing markets, communication technology and easier physical connectivity through what some have called the `Physical Internet’ airports and transportation hubs of the world. Space has been annihilated by time. Indeed the economic script has been changed.
This global economy brings with it both opportunities and dangers for the local economy and its enterprises. We can either be naively optimistic on the one hand about these opportunities or be cynically pessimistic about the dangers posed by the tectonic shift in the economic landscape.
As many authors have noted, in order to survive in this rapidly changing world we need to start thinking out of the box. It is essential that if local enterprises are to succeed, they have to efficiently make better products and gradually move into more skilled and knowledge based production.
Exports and imports or the supply of products and services are not into some amorphous global, national or local market but rather into mainly buyer driven value and supply chains that are often governed by global firms who define the rules (standards) of the game. Many large global knowledge based firms who dominate in marketing, branding and product design may specify product quantity, quality standards, oftentimes the very production process itself and may in a hierarchical relationship have direct ownership of operations within a value chain.
In a network based global economy the relationship between local enterprises with their buyers or input suppliers is critical in facilitating competition between value chains or supply chains. It is no longer simply the case that individual enterprises compete on their own, but rather that they compete as part of a broader network of enterprises where the failure of one networked enterprise negatively affects others in the value chain (eg Toyota and OEM component manufacturers, Checkers vs Pick 'n Pay vs Spar etc). A good understanding of these value chains and supply chains on a global and national scale enables better planning and strategy formulation both at firm and government levels to support the local competitiveness of enterprises.
Because of the competitiveness in the world, our LED strategies need to go beyond the formulaic “Five Stages of LED” approach where practitioners are only satisfied with producing unimplementable strategies, more as a matter of compliance, then creating a blueprint for local economic growth.
Indeed, the five stages themselves are important:
1. Organise local economic development effort
2. Assess economic potential
3. Define local economic development plan
4. Implement plan
5. Review and monitor plan
The test for our strategies will be how well we are able to implement them and how well they respond to our objectives.
Programme director, one of the perennial problems that undermine government planning and, by extension, implementation of programmes, is that the implementers themselves work in a silo approach where, it seems, the principle is that programmes should, at no time, interact. However, the interconnectedness of the objectives of various developmental programmes demand that, there should be closer working relations both at conceptual and implementation programmes.
Local economic development cannot hope to achieve its objectives if it does not interact, for example, with corridor development. Even at policy level, if our investment strategy does not talk to our local economic development approach, then we have a very slim chance of achieving our objectives.
Clearly, the most critical area for the success of local economic development initiatives is the participation of all social opportunities. Business, organised labour, civic bodies and other stakeholders need to be part of efforts to develop local economies.
In this regard, while government has the stewardship to lead the local economic development approach, no social partner is superior to others. Indeed, no social partner should be allowed to hold a development project to ransom just because they are looking out for their own narrow interests. The nature of the challenge we face as a country is such that all of us have to make sacrifices.
Director of proceedings, today’s summit provides all of us from the different spheres of government and our social partners with a rare opportunity to map out a new path of prosperity and sustainable development for our municipalities.
But, more importantly, the summit gives us a chance to redefine the role of municipalities beyond their responsibility of providing services to our people. The objective conditions on the ground mean that we need to create municipalities which are citadels of economic growth. This is a responsibility that we should shoulder collectively.
I thank you.
Issued by: KwaZulu-Natal Economic Development and Tourism
14 Nov 2011
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