Accelerating Economic Growth and Development in the Free State

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Accelerating Economic Growth and Development in the Free State








Accelerating Economic Growth and Development in the Free State 2

Executive Summary

This report addresses one of the key responsibilities of the Premier‟s Economic Advisory

    Council (PEAC) of the Free State, viz. the development of a comprehensive and coherent economic-development strategy, to enable the achievement of the economic objectives of the Free State Development Plan (FSDP). To underpin this report, the PEAC commissioned a number of research reports, the bulk of which will be released at a later stage in an effort to encourage more in-depth discussion of the different issues.

With 10,6 per cent of South Africa‟s area, 6,4 per cent of the national population and

    4,9 per cent of the country‟s Gross Domestic Product (GDP) the Free State is relatively large in physical area but small in population size and GDP contribution. The weak position of the Free State economy is reflected by the relatively low (2002) per capita

    income level (R11 854 compared to R17 164 for South Africa and R32 356 for Gauteng), a high unemployment level of 38,9 per cent (SA 40,8 per cent) and close to 49 per cent of the population “living in poverty”.

    Historically, the Free State had a solid economic base, which unfortunately has been dented sharply by the decline in the gold-mining industry over the past decade, the rationalisation of the grain industry and the interaction of a number of structural barriers to faster development. Unless these factors are addressed in a concerted, systematic and proactive way, there is a real danger that a “vicious circle of stagnation” will accelerate and the province will drift into deeper conflicts.

The PEAC is convinced that a “turn-around” towards a new growth path is possible, as

    long as all stakeholders and players in the Free State‟s economic process co-operate to

    achieve that goal.

1 Factors limiting economic development

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    Three sets of structural factors seriously limit the Free State‟s development momentum,

    viz. sector-growth weaknesses, spatial-development imbalances and a strained development environment.

Just as the rapid growth of the gold-mining industry shaped the region‟s economic

    ascent during the 1960s, ‟70s and ‟80s, just so its decline is responsible for the regional economy‟s stagnation since the early 1990s, with the employment share of gold-mining

    falling from 19,4 to 8,0 per cent over less than a decade. As there are no gold resources at comparable or lower costs in the Goldfields area, this decline will continue, with an escalation after 2010. Unfortunately, other minerals (including diamonds and coal) are unable to compensate for that decline.

    In the agricultural sector a number of forces have interacted to reduce employment and the value-added of conventional farming in the Free State. This has augmented the dampening impact which the declining gold industry has had on other sectors of the regional economy, leading to an overall 0,1 per cent real GDP growth per annum over

    the past 12 years. The lack of any new, distinct growth sector has led to the widespread perception that economic stagnation in the Free State is “chronic”.

Geographically the Free State‟s internal industrial- and services-sector development has

    suffered from the region‟s proximity to Gauteng‟s economic centre and the drastic decline in the province‟s platteland towns and villages, leaving only Bloemfontein and Sasolburg as relatively dynamic larger centres.

    On socio-economic and socio-political levels a relatively sharp polarisation between racial and private-public leadership has further hampered steady growth and dynamic development efforts, with institutional weaknesses and a particularly high level of HIV/AIDS infection constituting additional development impediments.

    The absence of a clearly articulated future vision of the Free State‟s economic growth path and its competitive advantages accentuate all these factors.

    2 A new approach to the Free State‘s economic growth and development

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    The PEAC is convinced that the Free State‟s disappointing economic situation is neither unique nor irreparable. Future growth momentum will depend on the mobilisation of a new range of growth niches and the reactivation of a number of platteland places. Rather than waiting for the emergence of a unique new “dominant” sector (like gold-mining) or for the Goldfields area to re-ignite, future growth may have to rely on several, relatively modest endogenous growth stimuli which interact to raise overall growth performance.

    Such a turnaround cannot be achieved by the private sector or through local efforts alone. Endogenous development initiatives have to be complemented by systematic, co-ordinated and sustained public-sector efforts, incorporating both the provincial government (and provincial parastatals) and national authorities. The crux will be bottom-up entrepreneurial initiatives “matched” and supported by co-ordinated local,

    regional and provincial efforts, facilitated by national and sector-focused interventions.

    The strategy document outlines relevant areas for local initiatives and public support, evolving as public-private partnerships.

    3 Opportunities for sector growth and transformation

    The PEAC sees significant growth and development opportunities in three sectors of the Free State economy, viz. agriculture, manufacturing and tourism, with a range of other sectors (trade, transport and communications, construction, financial and business services as well as educational and health services) each offering significant, though “non-spectacular” growth opportunities. Even the steady decline of the mining sector still leaves opportunities for the re-utilisation of redundant mine infrastructure facilities. Closer co-operation between mining corporations, local small(er) enterprises and public-sector players in the Free State could help cushion the process of mine redundancies.

    In agriculture much will depend on proactive efforts to further diversify the product range and to skilfully combine commercial and evolving subsistence farming. Also significant are efforts to increase value-adding in the agricultural and agri-processing value chain.

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    In manufacturing the success of Sasolburg‟s petro-chemical complex cannot be the

    only base for a provincial secondary industry. Focused efforts are needed to maintain, if not expand, industrial activities in the Bloemfontein-Botshabelo area and around the former Qwaqwa growth point, with the Goldfields offering more limited opportunities for new processes.

    Tourism may constitute the most significant “new” growth sector, with the potential including both the Free State-Lesotho mountain range and a number of more decentralised attractions, spurred by the Free State‟s location within a 350-km road-

    distance radius of Gauteng‟s urban agglomerations. There are clear indications that the sector is taking off, even though the short-run job-creation impact should not be overrated.

    In each of the smaller sectors mentioned earlier there are distinct growth opportunities, linked to an already existing sector base. Although the proximity to the Gauteng industrial and services hub dampens new developments in the Free State in most of these sectors, concerted public-private partnership initiatives should show modest success. In several of these Lesotho‟s consumer, investor and other demands should be viewed as important potential stimuli.

    4 Spatial development opportunities

    With a low overall population density, economic activities in the Free State are largely concentrated around three urban clusters (Mangaung, the Goldfields area and Sasolburg) and two development corridors, viz. Bloemfontein-Maseru and Qwaqwa-Ficksburg. Beyond these, only a few tourism spots and a range of small towns and transport routes determine the spatial pattern of development.

    Compared to other provincial centres like Johannesburg, Pretoria, Durban and Cape Town, Bloemfontein (population 400 000) is relatively small and has only a limited metropolitan growth potential. Sluggish regional growth and the decline of gold-mining have further limited that momentum. Yet, in the absence of significant secondary towns in the province, Bloemfontein has to cater for the consumer and general household needs of about 2,5 million Free State residents and about 1,5 million Lesotho residents. This should result in steady growth of trade, financial, business and professional

    Accelerating Economic Growth and Development in the Free State 6

    services as well as further and higher education. It should also attract some larger corporates if linked to proactive investor marketing.

The Goldfields urban area faces the Free State‟s greatest challenge to transform a

    modern urban complex in a way that it becomes less dependent on its dominant economic base. Even modest success will need close co-operation between all levels of public-sector support as well as the corporate and community-development segments of the private sector. Ideally, these effort should be “driven” by an efficient parastatal.

    The Sasolburg urban complex also stimulates developments in the Free State, even though most of its economic spin-offs spread into southern Gauteng. As a result, its multiplier impact on the Free State is more limited. The same applies to some of the other “border area” activities close to the Eastern and Northern Cape, KwaZulu-Natal

    and Mpumalanga.

    Activity axes along major through-roads (like the Mangaung-Maseru axis) also offer some scope for clustered business and/or industrial developments, even though the overall impact may remain modest. The same applies to what is probably the Free State‟s greatest development challenge, viz. the reactivation of at least some of the decaying smaller towns, and the steady expansion and “formalisation” of rural as well as urban informal-business activities.

    5 Cross-cutting issues and opportunities

    Given the wide range of growth-impeding factors of the Free State‟s economic-

    development process, it is of the utmost importance that the region obtains its full share of the central government‟s financial and other development support. In fact, public-

    sector bodies in the province, assisted by and closely operating with private-sector bodies or leaders, have to strengthen the local capacity to utilise or “milk” any potentially available national resources.

Similarly, the proactive involvement of the Free State‟s public-sector, working together

    with private initiatives, also calls for the strategic restructuring of some important institutions and a more focused utilisation of available support programmes. In this context particular attention has to be given to the small-enterprise sector and its role in

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    the activation of growth and employment opportunities. Once again, this calls for a systematic combination of national, provincial and local support programmes.

    The supply of appropriately trained and skilled labour is equally critical for accelerating growth, with the Free State particularly sensitive to the brain-drain towards nearby Gauteng. Here again, proactive public-private partnerships are needed in the training and applied research fields to reverse nett outflows. More specifically, and working from the perspective that knowledge (its generation, transfer and regeneration) has become a very important factor in economic growth in South Africa and across the globe, the province should promote the following:

    ; research and development (R&D) in science, engineering and technology, and their

    increasing contribution to the South African National System of Innovation

    through the activities of the existing research and development institutions and


    ; the development of the human knowledge base of the province, especially at

    further-education and higher-education levels as well as life-long learning, ; the expansion of the ICT infrastructure to facilitate competitive business,

    government and development communication,

    ; cross-provincial institutional linkages and networks to enable the Free State to

    participate effectively in “knowledge-economy” activities across South Africa.

    The PEAC sees the Free State‟s complex economic interaction with Lesotho‟s economy as both a challenge and a creative opportunity for the stimulation of provincial economic growth. Once again, however, these challenges call for creative programmes and support from all levels of government.

    6 The road ahead

    The legacy of more than a decade of economic stagnation has become a growth-retarding factor of its own. Any concerted efforts to “turn around” such stagnation will, therefore, have to include effective steps to propagate and “market” a new, revitalised Free State economy. These efforts will have to show that the combination of: ; the central geographic location of the Free State,

    ; its close links to the country‟s national history and political evolution,

Accelerating Economic Growth and Development in the Free State 8

    ; its close interaction with Lesotho‟s economy and society,

    ; its two dynamic urban centres (Bloemfontein and Sasolburg) and

    ; a number of promising sector niches

    can create the preconditions for a “turn-around process” if actively supported by public

    as well as private investors, business interests and public stakeholders.

    Parallel to such a determined marketing effort, the province needs to monitor its

    economic-development process very carefully, maintaining an open mind about

    effective as well as less effective support efforts and the need to regularly re-evaluate

    its development strategies.

    Within the parameters of its role and mission, the PEAC is committed to help strengthen and guide these efforts.

Accelerating Economic Growth and Development in the Free State 9

    Table of Contents

     Executive Summary 2

     List of Abbreviations 11

     Reports prepared for the Council 12


    Introduction and Background 13

    1.1 Role of the PEAC 13

     Box 1: Research commissioned by the PEAC 14

    1.2 The Free State economy in national perspective 15 1.3 Structure of the report 17

     Box 2: Basic facts on the Free State economy 18


    Factors limiting Economic-Development Momentum 20 2.1 Weak sector growth 20

    2.1.1 Gold-mining 20

    2.1.2 Agriculture 21

    2.1.3 Lack of new growth sectors 22

    2.2 Spatial and infrastructure weaknesses 23 2.2.1 Spatial development imbalances 23 2.2.2 Small-town decay 24

    2.2.3 Infrastructure deficiencies 25 2.3 Impediments in the development environment 25 2.3.1 Polarisation of society 25

    2.3.2 HIV-Aids 27

    2.3.3 Institutional weaknesses 27

    2.4 Conclusion 28


    Towards a responsive Partnership Approach to Development 29

    3.1 Broad-based endogenous development 29 3.2 Exogenous development support 31 3.3 Characteristics of an interactive partnership approach 32

     Box 3: Local and regional business-development dynamics 35


    Activating Opportunities: Sector growth and transformation 37

    4.1 The range of sector-growth opportunities 37

     Box 4: Sectors and niches relevant for Free State economic growth 39 4.2 Agriculture, fishing and rural livelihoods 40 4.3 Mining 47

    4.4 Manufacturing 49

     Box 5: Mining prospects in the Free State 52

     Box 6: Manufacturing prospects 53

    4.5 Tourism development 55

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     Box 7: Tourism trends and prospects 59

    4.6 Trade 60

    4.7 Financial, property and business services 61 4.8 Transport, storage and communications 62 4.9 Education, training and research 62 4.10 Other sectors 63

    4.10.1 Community services 63

    4.10.2 Health, welfare and personal services 64 4.10.3 Construction 64

    4.10.4 Domestic and informal-sector employment 65


    Activating Spatial-Development Opportunities 66 5.1 The BloemfonteinMangaung area 67

    5.2 The Goldfields area 70

    5.3 The Sasolburg petro-chemical complex 72 5.4 The MangaungMaseru corridor 74

    5.5 HarrismithPhuthaditjhabaQwaqwa 75

    5.6 National parks, rivers and tourism icons 76 5.7 Small towns and transport routes 76

     Box 8: LED efforts in small towns 78


    Cross-cutting Issues in Development Facilitation 80 6.1 Propagating development opportunities and marketing the region 80

    6.2 Utilising national development support 83 6.3 Strengthening provincial and local development-support agencies 85

    6.4 Supporting small enterprises 88

    6.5 Strengthen human development 91

    6.6 LesothoFree State interaction 93

     Box 9: Supporting knowledge-based economic development 94


    Implementation Challenges 97

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