SISONKE DISTRICT MUNICIPALITY

PRESENTATION TO THENCOP LOCAL GOVERNMENT WEEK

BYSISONKE DISTRICT MUNICIPALITY

31 July – 3 August 2012

THE GLOBAL CONTEXT

Prospects for global growth are being seriously compromised by the sovereign, banking and liquidity crises affecting the Eurozone.

THE ENVELOP WITHIN WHCH WE HAVE TO RESPOND

Investors have been moving to assets perceived to be safer, especially US treasuries and German bonds, despite the miniscule returns.

If effective steps towards a lasting solution are not taken swiftly, a catastrophic chain of events could be set off by one or more of the states in crisis, possibly Greece, in the not too distant future.

The consequential economic costs could be enormous and widespread.

The global crisis

Serious structural adjustments are absolutely necessary, so as to enhance the competitiveness of these economies and restore their financial stability.

However, protracted economic contraction, followed by stagnation, is likely to result in escalating social unrest.

Growth stimulation is thus essential to take the weaker states out of crisis mode.

The global challenge

The vulnerability of the global economy to external shocks is being increasingly exposed and global growth rate is becoming rather anaemic.

China, in turn, is again implementing growth stimulating measures in order to counter the possibility of a worse than anticipated slowdown.

Vulnerability of the global economy

Weak international demand as well as insufficient local consumption, are compromising country’s ability to continue posting the growth rates required to maintain socio-political stability.

Countries are using monetary policy to ease global economic challenges and infrastructure spending again accelerated.

However, the long-term recipe lies in a better balance between investment activity and household spending, as well as between external and domestic demand.

Weak international demand as well as insufficient local consumption

The sluggish recovery in parts of the advanced world and stagnation or recessionary conditions in others, are among the strongest inhibitors of economic activity at home.

Europe accounted for approximately 26% of South Africa’s merchandise exports in 2011 and weakening demand in this regional market does not bode well for export-oriented sectors, particularly manufacturing.

South Africa’s very open economy makes it particularly vulnerable to

external shocks.

Comparing the opening quarter of 2012 with the losing quarter of 2008,significant net gainers of jobs were:

the government and community services sector, financial services, – whilst manufacturing, which has shed the largest

number of jobs at the broad sector level, is still facing difficult trading conditions and excess production capacity in several of its sub-sectors.

Critical as it is to reduce unemployment levels, particularly amongst South Africa’s youth, it has proven extremely difficult to reverse the large job losses incurred since

the onset of the crisis.

Implications for RSA• The very difficult situation in the

Eurozone, if prolonged in an unresolved manner, will continue posing a drag on South Africa’s economic growth beyond the near-term, with the adverse impact magnified if the crisis intensifies or, in a worst case scenario, spirals out of control.

Structural unemploymentSouth Africa has an acute problem of

youth unemployment that requires a multi-pronged strategy to raise employment and support inclusion and social cohesion.

High youth unemployment means young people are not acquiring the skills or experience needed to drive the economy forward.

This inhibits the country’s economic development and imposes a larger burden on the state to provide social assistance

THE ROLE OF SISONKE DISTRICT MUNICIPALITY IN STIMULATING

LOCAL ECONOMIC GROWTH AND JOB CREATION

SISONKE DISTRICT

PSEDS-Provincial Spatial Economic Development Strategy

PGDS-Provincial Growth Development Strategy

NDP-National Development PlanNGP-New Growth PathNIPF-National Industrial Policy

Framework

NATIONAL POLICY CONTEXT

LED STRATEGY 2012With clearly identifiable objectives, with outcomes and outputs defined, with times frames ranging from 3 to 5 years.

INDUSTRIAL STRATEGY 2012Focused on agriculture, tourism, trade and social services

TRADE STRATEGYidentified: soybean, sugar cane, maize, citrus fruit, tomatoes, potatoes, beef, poultry, dairy and wood products as viable commodities for investment, development and expansion

BUSINESS RETENTION AND EXPANSION Local procurement opportunities and business support Tender advise

SMME STRATEGY AND 2ND ECONOMY INTERVENTIONSFocused on Cooperatives, especially financial services cooperatives, social

enterprises, youth enterprises and small business

Our LED Policy Context

Coordinated spatial planning and development interventions through IGR structures such as the Mayor`s forum, the municipal managers forum, etc.

Joint Investment Attraction through a “one-stop-shop” as “information clearing house” on development applications

A balanced strategy focusing on urban sprawl and rural decay

Small towns regeneration program focused on primary and secondary nodal economic hubs

A functional Geographical Information System which gives spatial location of our economic development interventions

Share development planning capacity

COORDINATION OF STRATEGIC DEVELOPMENT INTERVENTIONS

Mayors forum, chaired by the District Mayor

Municipal managers forum, chaired by the District MM

Development Planning and Local Economic Development, chaired by one of the local MM’s

Chief Financial Officers, chaired by an MM

Annual LED Summit with resolutions integrated into the IDP/LED & SDBIP

District LED & Tourism Forum (govt., business, labour and civil society)

MOU’s with commodity organisations such as Milk SA, Potatoe SA, Forestry SA

Business Retention and Expansion Forum

Effective use of IGR Structures Building Social partnerships

Our approach to co-ordination in achieving economic geography

Economic performance and key economic indicators of the District

Income and Employment Position: Economically Active Population

19961998

20002002

20042006

20082010

10%

11%

12%

13%

14%

15%

16%

17%

18%

Economically Active Population EAP as % of total population:

% o

f res

iden

ts

The District was the third highly economically inactive in the province after uMkhanyakude and uMzinyathiOnly 15 percent of the total population in the Sisonke District Municipality was considered part of the EAP with just under 75707 District Municipality residents identified as EAPMen make a far higher proportion of the EAP and that economic activity in the district is still dominated by men.

Income and Employment Position: Income Inequality

0-240

0

2400

-6000

6000

-1200

0

1200

0-180

00

1800

0-300

00

3000

0-420

00

4200

0-540

00

5400

0-720

00

7200

0-960

00

9600

0-132

000

13200

0-1920

00

19200

0-3600

00

3600

00-60

0000

6000

00-12

0000

0

1200

000-2

4000

00

2400

000+

0

5,000

10,000

15,000

20,000

25,000

Annual household income: Sisonke Dis-trict Municipality:

No.

of h

ouse

hold

s

Inequality is also a problem with research evidence suggesting a wide income gap, one of widest income gaps in the province.Nearly 80 percent of all Sisonke District Municipality workers earn 1600 rand per month or less while over 40 percent report earnings of 800 rand per month or less67 percent of households earned less than R42 000 a year while more than a third reported earning less than R18 000 a year.

Income and Employment Position: Poverty Indicators

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201060%

62%

64%

66%

68%

70%

72%

74%

76%

2010 (66.6%)

Percentage of residents living in poverty: Sisonke District Municipality,

% o

f res

iden

ts li

ving

in p

over

ty

The number of district residents who could be classified as ‘poor’ was almost 350 000.If poverty is considered as part of a share of population than the District municipality has seen its poverty share decrease from a 2001 high of 74 percent to 66 percent in 2010.Limited purchasing power of district residents creates barriers for local economic expansion and development

Income and Employment Position: Job Creation

1996199719981999200020012002200320042005200620072008200920100

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Number of unemployed residents: Sisonke District Municipality, 1996-2010

No.

of u

nem

ploy

ed r

esid

ents

Unemployment has declined significantly since 2007 when district unemployment was located at 55 percent to less than 25 percent in 2010The official definition of unemployment is failing to capture a significant number of district residents who have exited the job market out of fatigue at their failure to find work but are still willing to workUsing the expanded definition of unemployment –the unemployment rate for the district can be more accurately be represented at sitting at the 48-50 percent mark

Income and Employment Position: Where are the jobs?

Agriculture34%

Min-ing0%

Manu-factur-

ing7%

Elec-tricity

0%

Con-struc-tion2%

Trade13%

Transport2%

Fi-nance

5%

Community services37%

Share of employment by industry: Sisonke District Municipality: 2010

More than 52 percent of the employed in Sisonke District Municipality worked in low or unskilled occupations, 22 percent in elementary occupations. For those residents who are employed, the vast majority worked in the public sector –community service industry – and the agriculture sector. Together these two sectors accounted for more than 72 percent of total employment in the district

Income and Employment Position: Where have the jobs been?

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20101,000

3,000

5,000

7,000

9,000

11,000

13,000

Number of residents employed in the formal sector: Sisonke District Municipality,

1 Agriculture 2 Mining 3 Manufacturing4 Electricity 5 Construction 6 Trade7 Transport 8 Finance 9 Community services

In 2010 there were almost 11000 district residents employed in the community service industry –an increase of almost 60 percent since 1996Agricultural employment –in the district has declined in real terms since 2002Retail and wholesale trade industry which currently employs more than 3700 residents and has been steadily growing since 2005

Economic Position: Gross Domestic Product (GDP) Growth

19961997199819992000200120022003200420052006200720082009201020112012201320142015

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2011, R3 453 387

Gross Domestic Product (GDP): Sisonke District Municipality, 1996-2015

Con

stan

t 200

5 pr

ices

(R 1

000)

The GDP, in real terms, for the Sisonke District Municipality increased from R2.578 billion in 1996 to R3.361 billion in 2010 –an increase of more than 30 percentThe financial recession of the 2008/2009 resulted in a significant reduction in growth rates with negative growth reported for the period 2009. Analysts predicted that, however, in the period 2010-2015 economic growth in the district will slowly return to pre-2008 levels.

Economic Position: Gross Domestic Product (GDP) per capita Growth

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Real GDP-R per capita for the Sisonke District Municipality, 1996-2015

Con

stan

t 200

5 Pr

ines

(Ran

ds)

Projected 2011-2015

The data shows that since 2000, average output per person in the district has been grown. The financial recession 2008/2009 in particular has caused GDP-R per capita to stagnant during the period 2008-2011. Analysts predict a return to growth in 2012 and believe that GDP-R per capita might reach R7508 per person in 2015.

Economic Position: Annual Growth Rates Trend Analysis

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Annual growth rate: Sisonke District Municipality, 1996-2015

Agriculture Manufacturing Trade Total Industries

Con

stan

t 200

5 pr

ices

Agriculture 2008: 13.8%

District economic growth rates are linked to the growth rates of the district’s agriculture sector2008/2009 resulted in a significant reduction in growth rates for the agricultural sector with negative growth reported for the period 2009Manufacturing in the district has suffered an even more severe decline than manufacturing since 2008/2009 –in 2009 the manufacturing sector in the district experienced a negative growth rate of more than 8 percent

OUR INDUSTRIAL STRATEGY AND KEY ECONOMIC

SECTORS

The District Economy is primarily linked to Agriculture The District is particularly fertile and is well known for high

agro-ecological potential due to an abundance of high quality soils, high altitude, and abundant water.

Diverse climatic conditions make the area suitable for a variety of products including crops and vegetables, livestock and sugar cane around Ixopo/ Highflats area.

Environmental constraints/threats Intensification of agriculture, afforestation and growing local

demand may have potential dangers for future agribusiness Strain put on the local water ecology Soil degradation Growing demand of urban centres for resources

The main enterprises for which the District is suitable include: Intensive livestock enterprises such as dairy Horticulture crops

Prime Economic Sector: Greatest Agricultural Potential

Poor infrastructural support (logistics, road and rail infrastructure). Infrastructural development allows for farmers and buyers to link, and in turn, boosts local sales; translating into local economic development;

Increasing input costs (animal nutrition, seed, fertiliser, etc.)

Poorly defined economies of scale leads to poor farm management, and local agricultural economic planning. The number of commercial farms are decreasing while their farm sizes are increasing, indicating a consolidation of the commercial farming sector.

Lack of, or poor agricultural spatial economic planning. Agricultural planning has to be considered at local, regional, and national levels, to effect market flows, infrastructural requirements and rural development.

Poor information and knowledge management for improving farming practices among smallholder farmers. All farmers require information and knowledge, to improve and address production challenges. The distribution, collection and storage of required information and knowledge is pivotal to the success of any agricultural sector.

The key challenges faced by agriculture in the Sisonke District today include (cont.)

Relatively underdeveloped manufacturing baseProducts related to agriculture feature strongly

in the medium-sized sectors, and dominate small industry activities

Competitive advantage in agri-processing the domestic dairy industrythe domestic poultry industry

District economic development advantages in manufacturing are strategic location, its fixed transport infrastructure, its low-wage workforce and its abundant natural resources

Prime Economic Sector: Manufacturing

Manufacturing: Economic contribution

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

-1%

1%

3%

5%

7%

9%

11%

13%

15%

Share of manufacturing’s contribution to the dis-trict economy: Sisonke District Municipality, 1996-

2015

Sect

or's

shar

e of

regi

onal

tota

l (%

)

Projected 2011-2015

The manufacturing sector contributed no more than 6.3 percent of the district economy in 2010 which represents a marked depreciation from the late 1990s when the manufacturing constituted 8.5 percent of the district economy. The most important manufacturing industries for the district economy are food, beverages and tobacco products as well as wood and wood products -in other words value added agricultural products.

The Sisonke District Municipality has a small but vibrant forestry sector, and the forestry industry is a significant land user in many of the Local Municipal areas of the District with proportionate provision of job opportunities.

Forestry stocks largely taken up by SAPPI, Mondi and small scale independent producers such as NCT.

Biggest challenge is the availability of wood logs and non compliance to the forestry charter by the forestry companies

This has led to the complete collapse of the sawmilling industry and the large-scale job losses

Prime Economic Sector: The Forestry Sector

The Forestry Sector: The economic contribution –lack of beneficiation

2015 2010 2005 2000 19950%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Share of forestry’s contribution to the district economy: Sisonke District Municipality, 1996-2010

Plantations and logging Wood and wood products

In 2010 the forestry sector contributed R 331.329 million to district GDP and constituted more than 8 percent of the district economy. Forestry sector which contributed 10 % of the district economy in 1996 Analysts predict that the sector will decline from 8 percent to 6.6 percent in 2015. Logging has declined as a share of the district economy from more than 10.5 percent in 2000 to less than 8 percent in 2010.Wood and wood products have remained stagnant for much of the period under discussion before declining in 2005.

Agro-processing is an important segment of the economy and has significant potential as a driver for future economic growth in the district.

Issues impacting on agriculture and agro-processing include: Adverse climatic conditions – storms, hail, snow and frost Rugged terrain limits crop production Distances from access to machinery, plant and raw materials

supply (Durban and Pietermaritzburg) Distances from established markets and commercial hubs; Economies of scale and volume production inhibit further

beneficiation and production of dairy products like cheese and yoghurt.

Agro-Processing: Creating Value Added Chains –where opportunities are:

Agro-Processing: Creating Value Added Chains

Despite these threats significant opportunities exist for the expansion of agro-processing in Sisonke District Municipality. These opportunities include:

Land suitable for deciduous fruits and high value crops Land reform programmes supported by significant public

sector investment and parastatal bank loans Arable land and water Globalisation and access to export markets Government support and support institutions, funding,

technical advice, research etc New production techniques, tunnel / hydroponics and

shaded production Processing, packaging and distribution of local produce –

canning, drying, freezing and further product beneficiation Forestry, milling and production of related product

INSTITUTIONAL FRAMEWORK FOR LED COORDINATION

Low skills base Low industrial base Reliance on primary

agriculture and low agro-processing

Informal economy Low fixed capital

formation Industrial migration

Government limitations

Regulatory burden to small business

Turnaround time on development applications

Capacity to implement high impact investment projects

Economic analysis capacity Public sector commitment Budget priorities

OUR DEVELOPMENTAL CHALLENGES AND WHAT WE WANT TO ADRESS

Market failure

HOW WE HAVE RESPONDED

Low skills base: Building new FET College for agriculture Work readiness programme for young people, leverage MIG

projects as placement opportunities Training of cooperatives and SMME’s Financial support tru bursaries and scholarships

Low industrial base Beneficiation and value addition Corridor development and new commercial nodes Revival of rail link

DEALING WITH STRUCTURAL PROBLEMS IN THE LOCAL ECONOMY

Market failure

Dealing with market failureReliance on primary agriculture and

low agro-processingSpecial economic zones Agri-parks or agribusiness development

zonesLeveraging land reforms for the

production of cash cropsInvestments in high value crops

Dealing with market failureInformal economy

Regulation, control and development of street trade

Informal traders regulatory councilPartnership with “muthi” traders for

coordinated interventions in health and hygiene

Our strategic catalytic interventions

Special Economic Zones 20 hector state land earmarked

for: Dairy production through share

milk scheme Meat production Perennial crops, with special focus

on essential oils Cash crop productions, focussed on

high value crops Greenhouse gasses through

hydroponic farming The use of cooperatives model

for packaging 2000 jobs (both direct and

indirect)

Tourism investment Game parks Accommodation and

conferencing Events and cultural

tourism Community owned

theme lodges Heritage

Building capacity of the state to deliver local economic development

• Sisonke Economic Development Agency (“the sda”)– Limited Liability Propriety Municipal Owned

Entity with a mandate to facilitate high impact projects and facilitate trade and investment between the region and the rest of the world

– Specialist capacities such as: investment advisors, project managers, agro-economists, industrial development specialists focused on the implementation of high impact projects.

CONCLUSIONSGlobal economic challenges will

confine our LED interventionsArea based approach to LEDIndustrial development approach to

LED, that integrate the region to regional and international value chains

High Impact vs small scale poverty eradication approach

Thank You

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