TOWNSHIP VALUE CHAINS: Industry Development in Underdeveloped Areas

Dr Vuyo Mahlati

15 May 2012

Conference Presentation

University of Johannesburg, Centre for Small Business Development

Township Reality

• Historical creation of townships on the premise of racial separation and

labour supply

• Squalor and desperate poverty witnessed in the polluted streets,

overcrowded households, and high level of unemployment (ARP 2009:2).

• By 2030 70% of population will be urban

• Current reality - a decrease in rural provinces’ population. 2001 census

data and the 2011 population estimates point to the provincial share of the

total population that has fallen:

– Eastern Cape (from 14.4% to 13.5%),

– Free State (6.6% to 5.4%),

– Limpopo (11.8% to 10.9%) and

– North West (8.2% to 6.4%).

• According to Stats SA (2011), between 2001 and 2011, Gauteng has gone

from being the second-most to the most populous province in South Africa,

rising from 19.7% of the total to 22.39%. KwaZulu-Natal has gone from the

most to the second-most populous province, although its share of the total

has risen from 21% to 21.39%.

Progress & Challenges

• Progress in basic services delivery

– Urban Renewal Programme (URP), revitalization of

strategic urban localities through the refurbishment of infrastructure, LED projects and social integration.

– Extended Public Works Programme (EPWP)

• Fragmented intervention and variation in capacities of municipalities undermining intention of “focusing the resources of government in an integrated manner towards breaking the cycle of underdevelopment in cities”

Proposal: Comprehensive and

Integrated Township Strategy

• Inclusive planning framework with transformation of urban spaces (national, provincial and local alignment)

• Industrialization strategy (Local Economic Development) aligned with National Development Plan, Growth Path and IPAP 2

• Strategy to address poverty, unemployment and inequality

• “Reshaping Economic Geography” – Stimulating Value Chains for Redress, Jobs closer, link between per capita income differentials and the spatial disparities

• Nurture social capital development that catalyses economic activism building on self-reliance strategies.

National Development Plan (NPC 2011) in brief

∎ A united country, where all citizens are active participants in their own

development

∎ A capable state that drives development, promotes ethics and serves

the citizenry

∎ A dynamic and growing economy that is more labour absorbing,

providing opportunities for all, supported by adequate infrastructure

∎ An education, skills and innovation system that can develop the

capabilities of our people and our country

∎ Leaders who work together to confront and overcome our problems

Good for growth, not great for jobs

Good for growth, good for jobs

Bad for both jobs and growth

Good for jobs, not great for growth

Mining, exporting management

services, high skill service exports

Labour intensive manufacturing, mid-skill service exports

Rising public sector wage bill, low levels of investment, falling education standards

Public employment schemes,

home based care, retail sector growth

What drives growth is not always good for jobs or for reducing inequality

We need growth to sustainably raise living standards

We need jobs to reduce inequality

6

Township Industrialization Proposal

• Explore possibility of use of Special Economic Zones (SEZs) to stimulate township industrialization (focus on innovation and regional development inclusive of industrial parks, sector development zones and science parks )

• Inclusion of townships with potential as qualifying outlaying areas and use of value chain clusters.

Value Chain Clusters

• According to UNESCAP (2007:57) a value

chain cluster (VCC) is a cluster consisting

of an extended input-output or buyer-

supplier chain. Such a strategy can be

applied to informal and semi-formal

economic activities. Examples include bulk

buying, consumer and production

cooperatives within the food retail chain

The Food Service Case Study

SA Fresh Produce Markets (FPM)

• 14 FPM controlled by the various local authorities

who obtained their powers from the provincial or

central government,

• 4 largest FPM in Durban, Johannesburg, Cape

Town and Pretoria,

• 4 medium markets include Bloemfontein, East

London, Pietermaritzburg and Port Elizabeth, and

• 6 smaller markets in Kimberly, Klerksdorp,

Springs, Uitenhage, Vereeniging and Welkom.

Food Retail Structure

Processing, Corporate Retail & Export

Catering & Hospitality

Informal

TradingMajority black operators accounting for a low percentage of incomeHome-based and/or Street Trading

Few establishedCorporates

Accounting for the bulk of income

Suppliers

Central Warehouse

SDC SDC

SDC

SDC

SDC Function Short term Warehousing Dispatching Local point of presence

Fresh Produce & Dry Goods

SDC = Satellite Distribution Centre

Food Service Value Chain Cluster

Caterers Informal Traders

Spaza Shops

Small Processors

ESC Function

Business support &

Training

Distribution of market

information

Facilitate and support bulk

buyer

Access to Finance

Enterprise Support Centre - ESC

Buying Networks

Bulk Buying

Transformative Value Chain Model

• Clustering Imperative : Collaborate to compete. A network of caterers, informal traders, spazas, and small processors who collaborate according to fit in terms of sector/commodity, value chain level operation, geographic, business profile and other considerations . This collaboration could be in bulk-buying (through established satellite development centres –SDCs facilitated by municipalities for better access or directly to the Market), transport, and use of storage facilities. This helps with the exploitation of economies of scale whilst managing in a competitive environment. Collaboration will also be in terms of marketing.

• Adaptable Technology Innovations. For competitiveness and dealing with challenges of space, mobility and affordability.

• Training for growth. Enterprise support - business and technical training that will equip the traders/processors beyond survivalism as well as support in product diversity.

• Value Chain Support Finance Scheme.

A Model for Entrepreneurship Support (Nieman et al. 2003)

Economic growth occurs

Incomes increase

Living standards improve

Investment opportunities arise

Entrepreneurial orientation

Culture Role models Education Work

experience Personal orientation Enterprise culture

Supportive Environment

Infrastructure Finance Laws Training

Policy framework

Co-operative Environment

Institutions which are actively involved and assist with new

org development

Entry of entrepreneurs

Acquired abilities Inherent abilities

Products / Services

Results of entrepreneurship

+

Tax base is enlarged by a greater number of new firms

Technological development occurs

Job opportunities arise

SIYABONGA/ THANKS

socialwheel@live.com