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JULY 2022
An analysis of local economic development with local government: A case study of the City of Ekurhuleni
by Nondumiso Alice Sithole Msc. Public Policy & Management, LLB, Property & Investment Practice Law (Postgraduate Cert.), Legislative Drafting
Abstract This article examines the role of Local Economic Development (LED) in the context of the local government or municipalities in South Africa, with the City of Ekurhuleni as its case study. It explores various policies and methods that can be implemented as possible positive interventions to redress high unemployment and challenges associated with creating thriving and sustainable township economies, both formal and informal, which will be instrumental in reducing unemployment and poverty amongst local communities. The objective of the paper is to examine what ought to constitute LED at the grassroots level of South Africa’s economy and, more specifically, where local township developments are concerned. The research design used a qualitative approach wherein data were collected by means of a review of the City of Ekurhuleni’s public documents and reports, scholarly articles, and newspaper articles focusing on the topic. The findings point to the fact that municipalities in general need to make a concerted effort in providing a conducive and favourable environment for informal traders, and the informal sector at large, in order for this sector to establish and create sustainable businesses. It is only then that the informal sector could make an advanced impact in terms of LED, by contributing positively towards the growth of local economies.
Introduction
Local Economic Development (LED) is a grassroots-based approach to economic development. It encourages people, or stakeholders, in a local context, usually the local government sphere, to work together to achieve sustainable economic growth and development, which has positive economic benefits such as improved quality of life for all residents.
Local government has a range of roles and responsibilities in relation to social and economic development. It promises to be more suitable and relevant to implementing policies associated with the general concept of local economic development (Cooperative Governance and Traditional Affairs, n.d.), as local government has an important role to play in creating a favourable environment for local businesses’ development and success. At the heart of a successful LED policy and strategy is a partnership between the business sector, community interests, and municipal government (Sebareng, 2016: 4–5).
Some municipalities have established LED forums, which can include NPOs and NGOs alongside organised businesses. The objectives of these forums, amongst others, include encouraging private investment in the local jurisdictions; creating and retaining jobs for the local communities; expanding the tax base and contributing towards increasing the general level of economic well-being of local communities. In sum, the goal of these forums revolves around enhancing economic growth, the creation of employment and, ultimately, improving the quality of life for local inhabitants (Sebareng, 2016: 4–5).
Often, LED tends to embrace a pro-poor policy orientation. It is also associated with situations where municipalities work with local community structures to create environmental awareness and maintain clean and hygienic public spaces. A case in point, consider recent LED initiatives focusing on informal economic business, where informal employment was created through recycling and retail activities carried out in open spaces and on street pavements (Garane, 2021).
The Constitution of the Republic of South Africa (1996) recognises and endorses the importance of local government as a crucial instrument to pursue economic development. Section 152 and Section 153 (a) state that "a municipality must structure and manage its administration, and budgeting and planning processes to give priority to the basic needs of the community, and to promote the social and economic development of the community”. Here, the Constitution defines the municipality’s scope, mandate, and function to carry out obligations associated with LED. Beyond the Constitution, LED is justified by a vast legislative and policy framework empowering local governments to pursue the goal of economic development. For example, the White Paper on Local Government (1998: 23–36) further corroborates the government’s duties of advancing LED as enshrined in the Constitution. The Municipal Systems Act of 2000 provides core principles, mechanisms, and processes that are essential to “enable municipalities to work progressively towards the social and economic upliftment of their local communities” (Act 2003: 3).
To pursue LED, municipalities are legally required to have Integrated Development Plans (IDPs). For instance, the Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA) has the primary aim of providing all spheres of government with a framework relating to the establishment of policies and systems for planning and land use management. All municipalities must approve and adopt a single land use management scheme, from 1 July 2015, with the purpose of promoting economic growth, social inclusion, efficient land development, and minimal impact on public health, the environment, and natural resources (Dykes Van Heerden Group of Companies, 2020).
The Business Act 71 of 1991 is another important legislation that promotes LED. The primary objective of this legislation is to empower municipalities with the mandate or right to allow and/or restrict areas where trading is permissible. Secondly, the Business Act provides for various categories of businesses to be compelled to have a trading permit or a business license before they can operate legally (Garane, 2021).
There are other policies, frameworks, bylaws, and guidelines aimed at aiding and transforming economic development at local government level. The most recent development in terms of proposed legislation is the newly drafted Gauteng Economic Bill, which aims to structurally transform the Gauteng economy, to bring the historically disadvantaged majority into productive mainstream activities as owners, wealth creators, and asset builders (Siwela, 2020). The Bill also seeks to revitalise and streamline the township economy and move towards new ways of authentic empowerment for township and black-owned businesses. The Bill aims to make certain activities easier for township entrepreneurs and enterprises by making it more affordable and easier to establish, register, and operate businesses. The Bill intends to loosen red tape, remove bottlenecks, and improve the ease of doing business for township enterprises (Siwela, 2020).
The mammoth task to promote LED and provide basic services as required by the Constitution has not only put local governments under severe pressure, but also under scrutiny by the communities that they are meant to serve. The purpose of this paper is to examine the role that local governments have played thus far in planning and promoting LED in a broad sense, looking at the position of some metropolitan municipalities in South Africa. For the sake of focus, the paper will limit itself to the case study of what has been done in the City of Ekurhuleni to address socio-economic challenges faced by its local communities.
In terms of research methodology, this paper takes a qualitative approach. Specifically, it is desktop and literature-based where it explores the concept of local economic development. It also considers the mandate of local governments and the challenges that have influenced effective and successful LED planning and implementation in the City of Ekurhuleni. The third section focuses on how local government feeds into the informal and formal sectors of local communities practically speaking, taking into consideration the achievements or non-achievements of the City of Ekurhuleni. The final section considers possible solutions that may be adopted and/or utilised to reinforce and reinvent ways in which Ekurhuleni and municipalities in general are to provide effective support where LED is concerned, looking at the introduction of the New Gauteng Township Economic Bill, etc.
Background
The apartheid government centrally organised and managed all the resources; it was responsible for the entire economy, planning and execution. The result was that local municipalities did not have a role to play in matters of extreme importance, or rather, matters that pertained to economic development planning. If they played a role, it was a very small and insignificant one. There was clear neglect of the majority of the areas where most of the population lived (SALGA, 2010: 3).
After 1994, however, there was a major shift. National government placed an emphasis on grassroots initiatives and the participation of local communities. This meant that local government had to assume a wider range of responsibilities and was assigned with core developmental functions, namely, “to (a) structure and manage its administration and budgeting and planning processes in order to give priority to the basic needs of the community, and to promote the social and economic development of the community; and (b) participate in national and provincial development programmes”. After the December 2000 local government elections, every piece of land within South Africa fell under a particular jurisdiction of a municipality. Thereafter, concepts as well as strategies had to be developed in respect of the context of this new position, which was more inclusive and supportive of local economic development (SALGA, 2010: 4).
For an organisation or institution to achieve its objectives with respect to a particular mandate or core function and intended outcomes, it is fundamental to understand and define what must be achieved from the onset. The Organisation for Economic Co-operation and Development defines the purpose of LED as follows:
LED is to build the municipality of a defined area to improve its economic future and the quality of life for inhabitants. Local development makes an important contribution to national economic performance and has become more critical with increased global competition, population mobility, technological advances, and consequential spatial differences and imbalances. Effective local development can reduce disparities between poor and rich places, add to the stock of locally generated jobs and firms, increase overall private sector investment, improve the information flows with investors and developers, and increase the coherence and confidence with which local economic strategy is pursued. This can also give rise to better diagnostic assessment of local economic assets and distinctive advantages, and lead to more robust strategy assessment (Organisation for Economic Co-operation and Development, n.d.).
Similarly, the commonwealth local government forum defines LED as a central part of developmental local government. It is a process that brings together different partners in the local area to work together to harness resources for sustainable economic growth. Local economic development is increasingly being seen as a key function of local government and a means of ensuring that local and regional authorities can address the priority needs of local citizens in a sustainable way. There is no single model for LED – approaches reflect local needs and circumstances (Commonwealth Local Government Forum, 2021).
LED is a process by which public, business, and non-governmental sector partners collaborate to create better conditions for economic growth and employment generation (Murphy, 2006: 1). There is no universal agreement on the concept of LED. Hence, the concept is open to a variety or even competing interpretations, including both pro-poor and pro-development economic development approaches. Amongst some municipalities, there is still confusion about the LED department’s role, and LED is to a certain extent not considered a high priority (South African Cities Network, 2019: 8).
There is, however, a common element of what LED purports to accomplish and that is to economically develop the communities that they are directly governing or in close proximity to. The aim of LED is to enhance and create a conducive environment to drive local initiatives and promote welfare and business development within the community (Garane, 2021). LED must deal with the formal and informal economy on a parallel basis and must ensure support from the formal sector for the informal sector (Frank, 2021).
It is now a well-established principle that all municipalities are required to draft an annual and five-year Integrated Development Plan, with the main purpose of planning and implementing the policies and programmes of an LED strategy. Municipalities’ economic development plans are captured through IDPs, with the key mandate being, in general, the promotion of LED, community empowerment, and redistribution through the provision of policymaking and direction.
Municipalities are required to develop and ensure the enforcement of bylaws. They also need to develop processes to regulate land in a manner that aims to minimise costs of conducting business, while also optimising the inclusion of local communities (SALGA, 2010: 5–6). Municipalities have an overarching role in respect of LED; they must develop and provide an enabling environment for residents and businesses to have access and prosper through LED plans and must adopt a balanced approach to “pro-poor” and “pro-growth” (Meyer, 2014: 624–634).
The standard view is that at the core of LED is the idea that growth and development require an effective local government that will administer policies, programmes, and projects (SALGA, 2010: 5–6). For successful LED, local governments should strive to cultivate an environment where they do not only roll out projects to communities or informal traders in townships but also ensure that there are continuous monitoring and evaluation mechanisms in place that will offer support in various forms. The support can be mentorship or partnerships with firmly established private institutions, where local governments facilitate ongoing contact of business owners in the informal sector.
Municipalities are to be the main initiators and/or activators of economic development programmes through public spending, regulatory powers, and (in the case of larger municipalities) their promotion of industrial, small business development, social enterprises, and cooperatives (SALGA, 2010: 4). The role of a regulator has become extremely important with the establishment of increased private enterprises in respect of economic development. This is an imperative function for LED, and local municipalities are the most appropriate for this role (Mashamaite, 2018: 122).
Ekurhuleni Metropolitan Municipality Synopsis
Ekurhuleni Metropolitan Municipality is one of the largest metropolitans in the Gauteng province and one of eight metropolitan municipalities in South Africa. It is also one of the most densely populated regions in Gauteng, having a population of over 3, 3 million, with a youthful skills base. The municipality’s vision for its future rests on the implementation of its bold vision for social and economic transformation. Ekurhuleni’s economy makes up 21% of the total economic output of the Gauteng province, equalling 7,7% of the national production (Ekurhuleni Metropolitan Municipality, 2019).
It accounts for a quarter of the province’s economy and is said to contribute to over a third of the national Gross Domestic Product (GDP), through its production of goods and commodities. The municipality has a structural advantage over other local authorities in the province in that many of the production plants are located in Ekurhuleni. Manufacturing in the municipality accounts for just below 20% of Gauteng’s GDP and 28% of the total production. Due to its large concentration of industry in relation to figures nationally, and even in Africa, the municipality is often referred to as “Africa’s Workshop” (Ekurhuleni Metropolitan Municipality, 2005).
Ekurhuleni is also known to be the country’s manufacturing hub due to its location. It was historically a mining region but is now largely known for its accessibility to critical centres in the province. It has developed an impressive transport network of roads, airports, railways, and telecommunications, putting the municipality at the forefront of transportation in the country (Mabogoane, 2016: 5). The OR Tambo International Airport, which is a vital asset, positions the municipality as an international aviation node. Furthermore, the local municipality has sophisticated logistics and distribution infrastructure within its jurisdiction (Ekurhuleni Metropolitan Municipality, 2019).
The municipality’s planners developed a core strategic concept, the Ekurhuleni Aerotropolis – a part of the broader National Strategic Infrastructure Plan (NSIP) – that was meant to be at the heart of a broader programme of urban revitalisation (Ekurhuleni Metropolitan Municipality, 2019). The aerotropolis master plan was approved in November 2017 and a surge of investments and job creation were projected and expected by the municipality as a result of this development strategy.
From the above, one can infer that due to its diverse and extensive economy, its local inhabitants and the municipality should be thriving much more, economically, as compared to its counterparts within the Gauteng province. But this paper shows that the levels of poverty-stricken communities and the unemployment rate in Ekurhuleni have instead progressed to extremely high levels. In addition, Ekurhuleni has become an area where there is a low education rate, which has led to a skills shortage (Motsapi, 2022).
The IDP of the municipality demonstrates that the unemployment rate in Ekurhuleni increased from 2009; it stood at 26.6% in 2006, but by 2015 it had risen to 29.7%, pointing to the fact that the lack of vigorous LED continued to be a key factor. The unemployment in Ekurhuleni has consistently been higher than the provincial and national figures (Ekurhuleni Metropolitan Municipality, 2018: 12).
Identified / Current Challenges within the Ekurhuleni Metropolitan Municipality
There are a variety of factors that contribute to the challenges and complexities that slow down the municipality’s economic development. Firstly, it does not have a primary or core distinguishable identity, for example, Johannesburg is known as the “City or Place of Gold”. From the outset, Ekurhuleni’s institutional arrangement and its encompassing areas were never planned as a single functioning unit. Instead, it was formed as nine separate and independent local authorities with different needs, resulting in a municipality that is spatially fragmented (Ekurhuleni Metropolitan Municipality, 2005: 5-6).
One can refer to this “identity” as a unique, inherited collection of assets, history, traits, and culture that distinguishes it internally and externally, and has the potential to unite people and a place (Clark, 2020). Some metropolitan councils developed their identities around a core area, or “drawcard”. For example, Cape Town, which is known for its central business district (CBD) area and is thus a top national and global destination; and Johannesburg, which is known as the “Municipality of Gold” and is the hub of economic activity.
Secondly, the apartheid settlement patterns persist, where the residential areas are situated on the periphery of the urban areas (Mabogoane, 2016: 9-10), often far away from job opportunities and social amenities. The last decade has seen widespread expansion of informal settlements, especially within the mining belts of the municipality near the CBDs and older industrial areas (Ekurhuleni Metropolitan Municipality, 2005: 8-9).
It has been suggested that linked to the core of LED is the notion of nodes and corridors within developed areas. The rationale behind this approach, is that the nodes and corridors are strategically linked to the identification of areas for development that were used during the apartheid era to spatially separate communities. For example, for an effective public transport system, gaps were created between communities as a result of buffer zones to separate race groups (Ekurhuleni Metropolitan Municipality, 2005, p. 14). Therefore, it is recommended that efforts aimed at optimally developing areas such as Leeuwpoort and Ramaphosa informal settlement should be strengthened.
The influx of immigrants into the above informal settlements and continued migration of people in search of employment, demonstrates the fact that rural-to-urban migration is an ongoing activity. This migration remains a key challenge that is exacerbated by underlying historical pre-1994 spatial settlement arrangements.
The increase in informal settlements has led to increased informal trading, much of which remains unregulated (Metroplan Town and Regional Planners, 2012, p. 7). The probability of the population trading in illegal or counterfeit goods in these areas increasing due to migrants’ need for survival is high and, therefore, it is something that will remain an ongoing challenge. Recent Statistics South Africa research found that 216 companies (mostly SMMEs) across various sectors were liquidated in March 2021, compared to 178 in February 2021 – an increase of 21%. Liquidations at this rate and the trading in counterfeit goods exacerbate South Africa’s unemployment, which by the broadest definition is approximately 40% (Pozniak, 2021).
The rapid growth of the city’s forced urbanisation has the potential implication of over-population, which directly affects the city’s ability to plan, budget, and deliver services to its citizens. Moreover, the competition for over-stretched resources could have unpalatable social and economic implications for citizens, its institutions, and its ability to respond timeously and adequately.
Township Economy
South Africa is facing serious social and economic challenges. The country has a spatial plan that is not properly integrated to logistically connect the rural, township, and city areas efficiently. This fragmented spatial ‘ordering’ poses a serious challenge to economic development, with one of the upshots being the negative impact it has on the informal settlements.
The City of Ekurhuleni’s informal sector or labour markets – such as the car washes, shisa-nyamas, salon stalls, etc. – do not have adequate support for their survival, let alone to thrive as sustainable businesses contributing to economic growth. A key challenge, it seems, for the City of Ekurhuleni has been to uplift small informal businesses in townships and to register them as formal private businesses (Ekurhuleni, 2020, p. 25). There are serious material and economic inequalities within the municipality, including the disparity in investment between the informal business sectors in the townships versus the businesses in the formal sector, or mainstream businesses.
Another point of concern is that most of the nine towns within the jurisdiction of the city are to some extent characterised by urban decay and deterioration of the physical environment (Ekurhuleni Metropolitan Municipality, 2005: 8). Moreover, the disturbing phenomenon of buildings in the inner town or cities being “hijacked” and operated by criminal characters is a grievous obstacle to attracting investors. Ekurhuleni loses millions in revenue as a ramification of illegal occupation and misuse of municipal infrastructure by consumers who do not pay for services.
The municipality does not have a critical tool, a bylaw, in place to deal with issues pertaining to hijacked or deteriorated properties within its inner cities, rendering it incapable of addressing issues arising from the urban decay and other challenges emanating from these problems. The responses by the municipality in dealing decisively with the enforcement of some of its bylaws have failed, especially in the eviction of illegal occupants, who do not pay rates and taxes, adding more pressure to an already burdened system of revenue collection (Motsapi, 2022).
Furthermore, other relevant legislation that would provide processes to manage imperatives identified have thus far proven ineffective. The flagship projects identified in the IDPs as urban regeneration – the Germiston Urban Renewal Programme and urban renewal in Kempton Park (South African Cities Network, 2014: 36) – need to be vigorously implemented.
Revitalisation of Manufacturing
The manufacturing sector in Ekurhuleni remains one of the largest in the province, accounting for 21,5% of the gross value addition, and 27.9% of the overall gross value addition in Gauteng, in 2017. The manufacturing rate currently sits at 20,5% (Ekurhuleni, 2020: 21). The industry has been hard hit by the consequences of Covid-19, as reported in GDP reports stating that the sector suffered a 74,9% financial downturn. This sector-wide drop includes iron, steel, non-ferrous metal products, metal products, and machinery – it has all contributed to a total of 11% to the overall 51% decline. As the central location in respect of the production of metal products, machinery and plastics, accounting for around one-third of total South African output in these sectors, the municipality’s economy suffers when these sectors perform poorly (Roberts, 2011: 2).
The city has a mammoth task to revitalise the industry and ensure that they are proactive in taking the lead to restore the manufacturing sector, particularly where matters of compliance by firms is concerned. The city should not be slow to engage big industrial players, to obtain an understanding of how they have been able to survive or navigate the pandemic. Such interaction would assist the city to best ascertain how to assist them, thus ensuring their continued existence in the LED region and securing of jobs (Motsapi, 2022).
Another key element in Ekurhuleni is agriculture, which only contributed 0.4% to the GDP of the municipality. It is the sector that contributes the least to the economy of the municipality, bringing in a meagre R1.22 billion or 0.42% of the total GDP. That said, the sector experienced growth between 2008 and 2018, with the highest growth recorded in 2017 and an average growth rate of 13.4% (Ekurhuleni, 2020: 23).
The city was able to identify land that could be used for agricultural purposes through its “rapid land release programme”. Historically, it has been women who have relied heavily on the agricultural sector for the alleviation of poverty not only in their homes, but also in their direct communities. In Africa, women in rural areas constitute most of the agricultural labour force in small-scale subsistence farming, and globally, make up 43% of the agricultural labour force (Food and Agriculture Organization of the United Nations, 2022).
It is an undervalued sector that ought to be used to re-evaluate women's role and any other individuals that demonstrate commitment to and potential for being economically active as entrepreneurs or small-scale farmers, which might have the consequence of reducing poverty. The city, like other municipalities, is lagging in strategically repositioning agriculture as a sector that can provide viable economic and growth opportunities rather than merely being a subsistence sector. There has been steady progress in respect to the municipality making land available for farming purposes – 11 farms were handed over to successful bidders in August 2021. The municipality urged upcoming farmers to pair themselves with experienced farmers (Matsimela, 2021).
Ongoing monitoring and evaluation mechanisms of the programmes and projects rolled out by the municipality lack visibility. Its economic development department needs to continuously conduct skills audits to verify whether they have the requisite human capital with the relevant expertise. It is also essential to consistently update the database with external stakeholders that the municipality can partner with.
Legislation that is meant to regulate the informal sector or informal trading more often does not actually assist them. It is more onerous on informal traders from a compliance perspective and, therefore, makes it more challenging for them to get consent for use and other crucial permissions such as permits to operate their businesses. One major reason being that various red tape serves as a bottleneck rather than regulating or easing the integration of the informal (ergo, township) economy into the mainstream economy.
Furthermore, the Constitution enjoins the municipality as one of the levels of government that must facilitate LED, whereas the legislative authority in terms of decision-making pertaining to issues of importance relating to LED, lies in the hands of the provincial and national government. As an example, the National Disaster Regulations provide for the suspension of issuing of permits, whilst municipalities are required by law to regulate the granting and/or declining of permits (Motsapi, 2022).
The above is an inhibiting factor for most municipalities. Consequently, municipalities have to explore the option of powers being assigned to them by a higher structure of government for key areas when, in fact, the enforcement, regulation, and implementation ought to primarily be entrusted to local levels of government.
Proposed Interventions by the Gauteng Township Economic Bill
There is significant spatial inequality in the spread of economic opportunities in the suburban areas versus township areas in South Africa, and in the ability of townships to contribute to growth, being located far from urban towns’ economic hubs. The newly drafted Gauteng Township Economic Development Bill (the Bill) is aimed at redrafting how townships are regulated and governed to transform them into zones of widespread job-creating commercial activity.
The Bill will set up procurement rules and programmatic support that will allow government and its main contractors to buy from large groups of township-based firms. The province further proposes the establishment of a Small and Medium-Sized Enterprises (SME) Fund to provide wholesale, blended finance to intermediaries that can de-risk lending to township-based firms, including community banks (Constitution Hill Blog, 2021).
One is not certain, though, whether this is a response to key challenge(s) with the current procurement processes in place, particularly the 30% regime for small emerging companies to partner with established businesses. A key observation is that the manner or structure of the procurement legislation in place serves to enrich individuals more often, instead of the actual creation of more employment for the needy (Motsapi, 2022).
Ekurhuleni has for the past couple of years encountered its own challenges in enforcing and effectively implementing SPLUMA along with its own land-use schemes and other bylaws aimed at dealing with economic matters. The municipality is still attempting to create an environment wherein it will be conducive to and hassle-free for the ease of conducting or operating businesses (Motsapi, 2022). Therefore, any additional prescriptive production of legislation – in the form of the Bill and the proposed legislation – will in effect over-burden the municipality.
The Bill must ensure that clauses contained therein are not in conflict with other regulating tools that are aligned to the existing framework and legislation, otherwise the result may lead to inefficiencies. Ekurhuleni, like other municipalities, drafts its own IDP and allocates funding according to its current challenging landscape. The Bill makes proposals that will potentially impact on the already highly fragmented geography. This poses a huge problem for an infrastructure policy framework and may cause further challenges. It is difficult to foresee how it will aid in the development of the municipality’s economy.
Therefore, it seems that Ekurhuleni, like other municipalities, still needs to get the basics right in terms of the smooth operation of current systems and processes in place with respect to land use development, and other ancillary issues related to economic development, before it can think of implementing new laws. It is up to municipalities to work diligently, continuously, and consistently at capacitating its officials, who must always be made aware of the legal frameworks regarding the transfer of any land belonging to the government. They must be trained on the varying policy initiatives for the disposal of state-owned land, which may ensure that processes in respect of land are seamless and negotiations around the releasing of available land, easy (South African Cities Network, 2014, pp. 6-7).
A key challenge in relying on land as a resource to tackle LED, is the profusion of un-rehabilitated land, specifically in areas where a lot of mining has taken place (Motsapi, 2022). The municipality must, then, know how the land within their jurisdiction is managed – proper records of audits of usable land and that which is not usable must be kept updated. Its property-related departments should work synergistically in identifying various land parcels and continuously reporting on issues around land to the provincial and national governments.
The National LED Framework 2018-2028 sets out an expanded vision that identifies, with high levels of certainty, what needs to be done in order to progress towards a more successful form of LED. This is underpinned by the necessity to advance and deepen the country’s understanding of LED, its function in national, regional development and growth in South Africa (Cogta, 2011).
The framework is anchored on six core policy pillars that are supposed to influence the design, development, and implementation of LED and what it hopes to achieve: (1) building diverse and innovation-driven local economies; (2) developing inclusive economies; (3) developing learning and skilful economies; (4) enterprise development and support; (5) economic governance and infrastructure; and (6) strengthening local systems of innovation (Cogta, 2011).
Ekurhuleni still has a lot of work to do for it to elevate the status of its township economy to that of its mainstream business characterised by robustness and efficiency in their operations. The duty of the municipality to develop thriving local economies and further position them for specifically designed and packaged government interventions, is not being fulfilled at the desired pace. However, the provincial government has at least developed the Gauteng Township Bill, with a view to accelerating these kinds of interventions and bringing about the required change.
The municipality’s promotion of regional LED has been slow when it comes to the revitalisation of industrial parks, which are central economic nodes. Covid-19 made it even more challenging to measure any growth in this sector. Municipalities have a clear responsibility in terms of the Constitution to carry out their mandated functions in a manner that promotes local economic and social development. Most municipalities regard the critical element of LED to be an economic one, specifically the optimum utilisation of local resources to achieve reasonable and sustainable growth objectives (SALGA, 2010).
Scholars, such as Bartik (2003) and Trah (2004) propose the following fundamental approaches to LED strategy design: conventional or traditional approaches that assert that the key to prosperity is attracting investment (primarily manufacturing), through allowances such as tax breaks, cheap land, and even direct financial rewards, in return for locating in an area. The output of this for municipalities ought to be the creation of jobs through investments; the increase of urban efficiency by local authorities being able to increase urban productivity, through lowering the cost of living and doing business in the locality.
The municipality must, to a reasonable and sustainable degree, be willing to cut taxes and service charges to allow businesses to grow. It should privatise some non-core services, if and where possible. Efforts must be made to ensure equitable distribution of human resource development, which has positive consequences in terms of attracting and use of investment.
Municipalities must provide and give support to the establishment of local training bodies and require that firms provide a minimum amount of training to their employees; community-based approaches that emphasise the importance of working directly with low-income communities and their organisations; and, lastly, entrepreneurial-competitive approaches that emphasise the importance of local comparative advantages and small businesses in job creation. Local authorities must play a pivotal role in identifying growth sectors and in supporting businesses through research, consultancy, premises, technical infrastructure, and even loans or grants (Waldt, 2020: 5).
Situational Analysis
The World Bank defines LED as “the process by which public, business and non-governmental sector partner’s work collectively to create better conditions for economic growth and employment generation”. There are, however, several criteria or principles for measuring economic development, although none provides a satisfactory and universally acceptable index. There is no single approach to LED; each locality must develop an approach that is best suited to its local context.
The National Framework for Local Economic Development in South Africa 2006-2011 identifies the following as key principles underlying LED: it must create and prioritise job creation and poverty alleviation within their local communities; may target previously disadvantaged people, marginalised communities and geographical regions, black economic empowerment enterprises, and SMMEs to allow them to participate fully in the economic life of the country; must use local resources and skills and maximise opportunities for development; must improve quality of life by promoting local ownership, community involvement, local leadership, and joint decision-making; must involve local, national, and international partnerships between communities, businesses and government to solve problems, create joint business ventures, and build local areas.
Bartik (2002: 6) proposes that the type of evaluation of LED policies most needed is estimates of the impact of the policies on desirable local economic outcomes, or “outcome impact” evaluation. Programmes that provide a service or financial assistance to enterprises may be evaluated using the control and treatment group type of experiment. The analysis can be accompanied by surveys and focus groups to determine whether the organisation achieved its objectives or not. The surveys can be used to determine the effects of the programme on business decision-making for the organisation, or rather, in this case, the municipality (Studies in Poverty and Inequality Alleviation, 2013).
A more commonly used criteria of economic development are increase in national income, per capita real income, comparative concept, standard of living, and economic welfare of the community. Ekurhuleni is still a major economic and social role-player in South Africa by means of its strong industrial characteristics and contribution to the national economy, and the size and extent of its population. The municipality contributed 19.67% to the Gauteng GDP of R1.7 trillion in 2018 and is projected to grow at an average annual rate of 1.75% from 2018 to 2023. Gauteng and South Africa are projected to grow at 1.72% and 1.60% respectively (City of Ekurhuleni, 2021-2022: 26-27). The above demonstrates that the municipality is still a main contributor nationally. Research conducted by it revealed that the average annual household income within the municipality is R29 400, which is about the same in Gauteng, and South Africa (City of Ekurhuleni, 2021-2022: 25).
However, there are still critical areas where the municipality is lagging behind in improving the lives of its population. For example, the exceedingly high unemployment rate, which stands at 30.1% – 1% higher than the provincial and national levels (City of Ekurhuleni, 2021-2022: 46). In summary, there is a substantial percentage of the population that are still living in informal dwellings, 18.7%, which is higher than the figure for Gauteng (City of Ekurhuleni, 2021-2022: 24). Clearly, the municipality still has a great deal of work to do towards achieving its local economic objectives.
Recommendations
Firstly, it is necessary as a basis for the city to conduct a desktop re-evaluation of all its current policies, legislation, programmes, projects, all relevant operational systems, and initiatives pertaining to economic development. The results of the SWOT analysis – a strategic planning and management technique used to help a person or organisation identify strengths, weaknesses, opportunities, and threats related to business competition or project planning – will identify the areas that need intervention and perhaps even what those interventions must be.
Secondly, the historical context of Ekurhuleni means that its institutions at the metro level are weak. The bringing together of nine different towns, which were largely rivals, meant that the common institutions had to be built in order to bring uniformity (Roberts, 2011: 16). These central institutions are not well defined and operational in the city.
The leadership at the helm of the city should strive to advocate a change in the mind-set of officials, who should by now have completely moved away from the mind-set of the previous dismantled municipalities (Frank, 2021). With the marketing of a single city, and the employment of staff who are not from the previous municipalities, there is now a need for the city’s departments to work in a coordinated manner to achieve the objective of LED.
A clear network of institutions is imperative for the city to be able to realise the collective benefits of the different towns or regions. The effect should be the sharing of crucial skills, technical know-how, thereby assisting with developing resources that are urgently needing to be upgraded. The “network of institutions” – the internal networks of the city and public-private partnerships with the various groups of enterprises – can be motivated through incentive measures and skills development for employees who are tasked with implementing the government policies and rolling out effective service delivery. According to Roberts (2011: 2), the balance of power must come through building or rebuilding more coherent bodies representing interests of downstream manufacturing, small to medium enterprises, empowerment, and equity objectives.
The city should also invest in facilitating the fostering of these connections, as the governance of these inter-firm relationships is vital to the development of local industries. In addition, the city must attempt to meet private companies halfway by putting in place incentives such as “payment holidays” from rates/taxes, to attract new investors and keep investors developing within its borders (Motsapi, 2022).
Thirdly, the Economic Development Department must have a functional division that is able to formulate, implement, and monitor policies seeking to revitalise, create, and manage an informal economy, actively targeting poverty alleviation and wealth creation. Individuals must have a fair opportunity to transition from the informal economy to the formal economy, and local government is ideally placed to facilitate this process (Frank, 2021). This division must, along with other departments, also dedicate time to the issue of rebuilding decaying or hijacked building infrastructure, with the intended outcome of attracting investors. The city could identify properties to purchase and turn into low-cost housing or even rental stock. In addition, the identification of land parcels, through land audits, to be utilised for various purposes including agricultural development, is also vital (Frank, 2021).
The city should consider the establishment of a committee or task team mandated with property-related issues as well as enforcement of its bylaws with regards to building contraventions. A collaborative approach should be adopted, where the landlords or owners are made part of the task teams or committees, as they are essential in the reclaiming of hijacked and decaying buildings.
With regards leasing land to emerging farmers to invest, promote, and regenerate the agricultural economy, the municipality needs to develop appropriate measures to support stable capabilities, tutoring, collective learning, and upskilling. The city should foster a proactive leadership role in facilitating the fast-tracking of land use applications and the granting of consent for informal traders that conduct businesses in the townships. There should be consistent training and development of individuals at the frontline of assisting the public with information regarding applying with council to open businesses, whether informally or formally. A key priority should be holding information workshops with the public to educate them in general with regards to applications and processes (Frank, 2021).
The municipality also needs to use the legislative tools available – such as Chapter 7 of the Constitution, SPLUMA, and the Regulations of the Preferential Procurement Policy Framework Act (PPPFA) – to include the informal economy in the formal economy. The regulations of the PPPFA obligate the municipality to provide for subcontracting of at least 30% of a tender, which value exceeds R30 million. This regulation has created a superstructure for targeting the informal economy, but, as yet there is no policy developed by the municipality to implement these regulations effectively (Behari, 2021).
Furthermore, the supply chain policy ought to be reviewed to make it applicable, and inclusive of the informal sector. Pending the finalisation and/or adoption of the Gauteng Township Economic Bill, the municipality should revise its town planning scheme, and implementation of SPLUMA should also make provision for the development of the informal economy. Currently, there is a tendency to deal with many informal businesses as contraventions of the town planning scheme. Where appropriate, land use in terms of consent must be considered.
The city should propose to provincial and national government that it should be assigned with competent powers in terms of the Constitution in areas where it is required to regulate by law, as it is municipalities who in fact govern their communities at grassroots level. Therefore, municipalities, in certain key areas, should have the same powers as other levels of government, lest the lack of powers hinder service delivery in urgent situations. In areas where municipalities have proper infrastructure and can supply electricity, they should be given those rights. SALGA is currently seeking that municipalities be granted exclusive rights by the courts to distribute electricity within their boundaries to bolster revenue collection.
Conclusion
According to studies, the size of Ekurhuleni’s economy and its location within South Africa’s economic heartland of Gauteng does not appear to have translated into strong local economic development. The literature review suggests that robust economic development policies have an essential role to play in the planning and provision of sustainable support for building technical abilities, capacity in terms of appropriate skills, resources, and infrastructure. We also noted the importance of a coordinated approach that is responsive to evolving global technology and adapts industrial and agricultural policies as well as skills development frameworks, to ensure both the formal and informal economies realise the benefits. The formal sector is an easier category to “manage”. A large part of the budget and effort is devoted to the formal sector, as this is one of the primary bases for raising rates and sales of utilities. Whereas there is a tendency to either neglect or minimise the importance of the informal sector.
One of the legacies of apartheid is the lack of economic development in previously designated black townships and rural areas. Poverty is a significant driver of the informal economy. Not all informal settlements are poor, but most of the inhabitants are indeed indigents and require social safety nets. It is thus crucial that some sort of formalisation of some of the habitable settlements becomes a key priority. It is imperative that the municipality’s Human Settlement Department is consistent and tightens up efforts in its process to identify settlements that can be upgraded or, alternatively, transitioned for the land to be bought and/or expropriated. (Motsapi, 2022).
The objective of any human being to earn a living is not primarily to make a profit, but to provide shelter and feed a family. Left neglected and unregulated, the informal economy has the potential to become a source of nuisance and lawlessness. Most often the reaction from the municipality is to seek legal recourse and shut down informal businesses. This practice is contrary to the provisions of the Constitution. The local economic problem is at times further exacerbated when documented or undocumented foreigners set up informal businesses in townships and exploit the market or economy, adding to the imbalanced competition within the informal sector. Left unattended, the informal economy could become unmanageable and may not contribute effectively to addressing the crisis of poverty for thousands.
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This report has been published by the Inclusive Society Institute
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