PERSPECTIVES - Coega€¦ · and re-imaging development futures, are in line with the increased interrogation of neo-classical economic approaches in planning circles in the wake

2012 4TH EDITION

PERSPECTIVES ON REAL ECONOMY ISSUES

PERSPECTIVES

Exports And Economic Growth: A Cointegration And Granger-Causality Analysis | Investing For The Good Of All: A New Approach To Pension Fund Investment, As The Global Economy Remains On Life Support | Inflation Determinants In South Africa: The State Space (Sspace) Model Approach | National Development Plan: The Critical Role Of Communication | The Application Of Foresight In Corporate Planning For South African Government Departments | Rail Modernisation: Is It The Solution For South Africa’s Transport Problems? | The South African Defence Review: National Options And Challenges (A View From The Eastern Cape) | The Future Of Sustainable Use Of The Oceans: The Role of South Africa | The (Il)Logic Of Wage Labour | Finding A Way In A Changing

Legislative Environment: From IDZ To SEZ | Youth Leadership Academy And Process Of Empowerment: Cultivation Of The Mind | SEZs – Carpe Diem For Industrial Development | Western Cape Defence

Industry | South Africa Pushed To The Limit

Editorial Team Prof. Richard HainesMonde MawashaNjabulo SithebeIdriss MouchiliAmy Shelver Disclaimer:The author(s) of each article appearing in this Journal is/are solely responsible for the content thereof; the publication of an article shall not constitute or be deemed to constitute any representation by the Editors and the Coega Development Corporation that the data presented therein are correct or sufficient to support the conclusions reached.

2012 4TH EDITIONPERSPECTIVES

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02 EDITORIAL

07 EXPORTS AND ECONOMIC GROWTH: A COINTEGRATION AND GRANGER- CAUSALITY ANALYSIS Vukani Nkasa

19 INVESTING FOR THE GOOD OF ALL: A NEW APPROACH TO PENSION FUND INVESTMENT, AS THE GLOBAL ECONOMY REMAINS ON LIFE ̀ SUPPORT Ayodeji Olaifa and Idriss Mouchili

30 INFLATION DETERMINANTS IN SOUTH AFRICA: THE STATE SPACE (SSPACE) MODEL APPROACH Abdou Semiyou Rafiou

39 NATIONAL DEVELOPMENT PLAN: THE CRITICAL ROLE OF COMMUNICATION Ed Richardson

48 THE APPLICATION OF FORESIGHT IN CORPORATE PLANNING FOR SOUTH AFRICAN GOVERNMENT DEPARTMENTS David Lefutso, Thembinkosi Semwayo and Mphathi Nyewe

63 RAIL MODERNISATION: IS IT THE SOLUTION FOR SOUTH AFRICA’S TRANSPORT PROBLEMS? Njabulo Sithebe and Siphamandla Gumbi

70 THE SOUTH AFRICAN DEFENCE REVIEW: NATIONAL OPTIONS AND CHALLENGES (A VIEW FROM THE EASTERN CAPE) Idriss Mouchili, Prof. Richard Haines and Amy Shelver

86 THE FUTURE OF SUSTAINABLE USE OF THE OCEANS: THE ROLE OF SOUTH AFRICA Prof. Vlad M. Kaczynski

DISCUSSION PIECES

97 THE (IL)LOGIC OF WAGE LABOUR Ongama Mtimka and Lonwabo Mava Dlepu

106 FINDING A WAY IN A CHANGING LEGISLATIVE ENVIRONMENT: FROM IDZ TO SEZ Nomzamo Kolo and Amy Shelver

111 YOUTH LEADERSHIP ACADEMY AND PROCESS OF EMPOWERMENT: CULTIVATION OF THE MIND Akhona Mfama

116 SEZs – CARPE DIEM FOR INDUSTRIAL DEVELOPMENT Graham Taylor

124 WESTERN CAPE DEFENCE INDUSTRY Prof. Richard Haines

127 BOOK REVIEW: SOUTH AFRICA PUSHED TO THE LIMIT Nomzamo Kolo

CONTENTS

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This fourth volume of Perspectives addresses a number of significant national, regional and international developments. Primarily the journal focuses on strategic national policy interventions and efforts. These include the National Growth and Development Plan formalized in August 2012, the Draft Defence Review and the challenges of restructuring the defence force and defence industries, the increased policy and planning interest in the South African marine and maritime economy by the relevant national government agencies, and the relationship between increased investment in the national rail network. Other issues covered include the consideration of the implications of pending legislation on SEZs (Special Economic Zones) in South Africa, and a revaluation of wage labour with special reference to 21st

EDITORIALEditorial Team

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century South Africa. Since its inception, the Perspectives Journal series is written against the background of continuous debate worldwide and nationally, about the imperative of achieving an inclusive growth, creating sufficient jobs, reducing inequality and lifting communities out of abject poverty. How long is the poor majority willing to wait before a glimpse of hope appears at the end of the tunnel. The answer as suggested by recent international events, not long1.

Vukani Nkasa explores the dynamics of the causal relationship between exports and economic growth, utilizing a co-integration and Granger-causality analysis. The data suggests a long-term relationship between exports and economic growth. The implications for South African future economic and industrial strategy are considerable. The author argues that to stimulate economic growth it is vital for government to prioritize the diversification of the country’s export market and encourage domestic and foreign investment. Although export of manufactured goods has increased somewhat since the 1990s, this is not sufficient to generate an export-led growth boom as in certain East Asian and other high performing transitional economies. Part of the problem has been the continued over-reliance of resource-based products, and by implication an apparent lack of urgency in ensuring the thoroughgoing beneficiation of such products.

Ayodeji Olaifa and Idriss Mouchili examine the options for pension funds industry internationally, in the post-2008 period. They stress the strategic nature of such a move given the substantive impact of pension fund investments on national economic development, and contend that alternative and socially responsive investments can both reduce portfolio risks, while optimizing shareholder value. Their findings provide a compelling case for the adoption by pension funds as alternative investment strategies, with a particular emphasis on responsible investing.

In the first of the articles focussing on national economic and industrial development policy issues, Abdou Semiyou Rafiou examines the main drivers of inflation in South Africa and the policy implications thereof. Utilizing an SSpace technique Rafiou, shows that the long-run causes of inflation in South Africa during the period 1971-2012 are of a cost-push nature. The study also shows that cost-push inflation is highly relevant in South Africa with the influence of trade unions on public policy, the overall decline in the mining sector, and the country’s exposure to imported inflation being the major determinants of current inflation. For improved control of inflation, policy makers should look at productivity improvements, increased competition, and innovation, which in turn would reduce income inequality. Furthermore, labour market reforms are essential.

Ed Richardson reviews the challenges facing the implementation of National Development Plan. Due to the comprehensive nature

1. Borrowed from a 1965 Nobel Prize Winner Martin Luther King, “How Long, Not Long”

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of this visionary document, there is a need for wide-ranging coordination and even a ‘dramatic culture-change across the whole economic and social spectrum’. This in turn demands a particularly sophisticated communication strategy. Richardson points out that poor communication is more directly responsible for strategic project failures than is generally realized.

The ways and means of streamlining state agencies and creating a more distinct ‘economic bureaucracy’ are a key consideration in the National Development Plan. David Lefutso, Thembinkosi and Mphathi Nyewe tackle such issues in their examination of the application of corporate planning in the national Department of Rural Development and Land Reform. They outline the shift towards, and the merit of, the adoption of a foresight driven strategic approach by the Department. Such paradigm shifts are informed by inter alia the growing influence globally of Future Studies and its application in the public policy and planning domains. Such approaches which take more cognizance of the views of the constituents of a particular state agency in exploring and re-imaging development futures, are in line with the increased interrogation of neo-classical economic approaches in planning circles in the wake of the 2007-9 economic crisis.

The dynamics of the relationship between infrastructure provision and development have been brought to the fore in relevant debates and articles in previous issues of Perspectives. In addition, the increasing nature and pace of infrastructural provision within the national space economy is among the chief aims and objectives of the National Development Plan and the range of on-going and state-directed regional and local development initiatives at this juncture. Against this backdrop Njabulo Sithebe and Siphamandla Gumbi argue that reinforcing the current rail transport system in South Africa and strengthening the relevant support and beneficiation networks is pivotal if there is to be an appropriate and serious response to the challenges of both the New Growth Path and the National Development Plan. Leading high performing economies such as China, the authors point out, have looked to strengthen their investment in rail transport, the results of which have been widely beneficial. As an aspirational developmental state South Africa is moving to address the current skewed ratio between road and rail transport. However, there is merit in quickening the pace. The history of rail in South Africa suggests that a thoroughgoing investment in rail networks and rail modernization will see immediate benefits and make a positive impact on job creation targets and contribute significantly to improved social mobility and reduce inequalities in the social economy.

The question of the restructuring of the South African National Defence Force and a rethinking the nature, scope and contribution of associated sectors and structures such as the national defence industrial base, constituted a another key site of strategic intervention for the South African developmental state in 2012 and

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after. Idriss Mouchili, Amy Shelver and Richard Haines consider the economic and development implications of the new Defence Review – a document which explicitly addresses the relationship between defence and the development, and which uses the National Development Plan as a touchstone in the process. The new Defence Review went through an extensive public review process during 2012, and one of the formal public hearings for the Eastern Cape being held in Port Elizabeth. The writers provide a short analysis of the main issues and recommendations raised at this forum. They then consider the implications for a re-invigorated national defence force and defence industrial base for the Eastern Cape as a route to unlocking economic potential.

With the increased emphasis on the diversification of the South African economy in the national economic planning exercises, the question of the ‘blue economy’ is gaining in significance and is being addressed by a range of state agencies and policies. Vlad Kaczynski’s article examines the potential role of in future approaches to the sustainable use of the oceans. He argues that by adopting a sustainable path of marine economic development, South Africa could strengthen for the longer term, the linkages of its national economy with the marine environment. This in turn would position the country closer to the massive resources of the world’s oceans. A strategy emphasizing sustainability would stimulate the exploration of the use of new technologies and marine resources in new forms of commercial activity. This approach would also ensure that South Africa meets its obligations, and thus combine its privileges with its growing responsibilities in its role as a member of the international marine community.

The Development Forum section of the journal comprises four pieces. In the first of these discussion pieces, Ongama Mtimka and Lonwabo Dlepu question the over-emphasis on wage labour and mass production both internationally and, more specifically in South Africa. In the latter, an over-emphasis on a monetarist approach to development, they contend, has over time led to the narrowing of production capacity particularly in the countryside. They argue the case for thoroughgoing state intervention in small scale agriculture to re-invigorate subsistence agricultural activities and the accompanying social economy.

Nomzamo Kolo and Amy Shelver consider the proposed re-alignment of current IDZs (Industrial Development Zones) within the emerging policy terrain of SEZs (Special Economic Zones). With a special reference to the Coega IDZ, they outline the shortcomings in the pending legislation for SEZs and the accompanying policy productions and debates.

Taking a different tack, Graham Taylor considers the differences between the IDZ and the newly proclaimed SEZs. He shows while ‘creative politicking’ had led to development of a world-class infrastructure for industrial development within the Coega IDZ, the concept has structural limitations. For instance, the number of investors attracted by the South African IDZs (Coega


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included) is below expectation. An SEZ option should offer more for the operators of current IDZs, and other future SEZ ventures. However, Taylor argues that strategic leadership and the creation of the necessary enabling environment for the ‘plucking’ of opportunities, are key preconditions for ensuring that SEZs do not succumb to short-term opportunism.

The National Development Plan identifies the building of human and social capital through a range of interconnected ventures and activities – processes in which institutions will play a greater role than is currently the case. While structural improvements to the public and even private schooling and educational structures are an obvious national priority, there is also a need to consider the role of other potentially strategic institutions in the education and training interventions. Such institutions, especially those targeting youth constituencies, will need more resources and creative space to effect far-reaching changes in the economy and society of South Africa. Within such a context, Akhona Mfama contends, there is a need to look more directly to interventions which contribute directly to the youth-and-development nexus. In this regard, as he demonstrates, youth academies have a good deal to offer, and should be more extensively deployed within the country.

Richard Haines presents a research note on a study of the Western Cape defence industry. This study links with the earlier analysis of the new Defence Review, most especially in regard to its emphasis on the need to re-invigorate the national defence industrial base. Haines shows how the seemingly modest Western Cape defence industry has more embedded value and high-end technology than is generally appreciated within local policy and planning circles, and that there is merit in looking to establish a formal provincial cluster for this sector to improve its competitiveness and procurement capabilities. He warns though that this sector has been eroded further in recent years by the demise of a number of firms who had historically been linked to defence Research and Development and procurement chains.

This issue is rounded off by Nomzamo Kolo’s review of Hein Marais’s recent work, South Africa Pushed to the Limit. The book deals with South Africa’s post-apartheid political economy and outlines the obstacles facing policy makers seeking to create a developmental state.

Perspectives provides insights into crucial trends emerging in the national landscape and is well worth the time spent engaging and dialoging.

PERSPECTIVES 2012 4TH EDITION EXPORTS AND ECONOMIC GROWTH: A COINTEGRATION AND GRANGER CASUALTY ANALYSIS

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In recent decades, an increase in globalization has presented economies with trade opportunities, especially in emerging economies. To ensure this, on the 8th of September 2000, the United Nations (UN) adopted Millennium Development Goals (MDGs) which were set to be achieved by 2015. In these MDGs, Goal 8 ensured that much of the developing world was benefiting from global economies and achieving rapid economic growth through increasing the proportion of totally developed countries’ imports from developing and less developed countries (MDGs Report 2010:68).

ECONOMIC GROWTH:

Vukani Nkasa (Coega Development Corporation)

A COINTEGRATION AND GRANGER-CASUALITY ANALYSIS

EXPORTS AND

INTRODUCTION


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In this age of globalization, a country’s economic performance and its policies are mostly influenced by international trade and economic links (Mohr 2007:142). However, the debate on the relationship between exports and economic growth has elicited considerable interest in the field of development economics. A series of empirical studies have been conducted in order to access the role of exports in economic growth, particularly in developing countries.

The benefits associated with the relationship between exports, economic growth, and their causality have been of considerable interest, especially in emerging economies. This remains a topic of debate. This theory shows a positive correlation between exports and economic growth; however, the question is the following: which of these two economic variables causes a change in the other? This question is of great importance for policy-makers who need to concentrate their resources on comprehensive policies so as to promote exports in order to stimulate economic growth. It can be argued that there are sound theoretical reasons for more open economies to grow faster than those which are more closed economies (Snowdon and Vane 2005:664). However, many empirical studies have shown that international economic integration has had a positive effect on economic growth. Some economists argue that freer trade will have a levelling effect on raising a country’s economic growth, once and for all.

South African economic policy has always accorded an important role to exportation in the overall growth process (Rangasamy 2009:603). In 2011, South Africa became a member state of Brazil, Russia, India and China: one of the countries with a rapidly-growing economy. However, much work remains to be done, as South Africa requires at least seven percent of economic growth per annum to achieve both full employment and fair economic redistribution to all its citizens (South Africa MDGs Country Report 2010:3b) as regards all its citizens.

The main objective of this paper is to investigate the relationship between exports and economic growth in South Africa by applying the Granger causality test. This empirical studies, carried out on behalf of India, Pakistan, the Philippines, Malaysia and Thailand, has shown that exports have a significant impact on economic growth, more particularly in middle-income economies (Vohra 2001:349). Ukpolo’s 1998 study which examines the South African context has evidenced a significant relationship between exports and economic growth. This study has proved that economic-growth Granger-causes export growth. Nevertheless, the latter has failed to support the export-led hypothesis that export causes economic growth.

With regards to whether or not an extended relationship could exist between exports and economic growth in South African economy during this period of study, attempts have been made to establish the latter with the application of co-integration


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techniques, regarding whether or not an extended relationship might exist between exports and economic growth in the South African economy during this period of study. If such co-integration does indeed exist, then an attempt should be made to identify the direction of causality between the two variables by means of the use of a Granger causality test.

In any country in the world, economic growth depends to a large extent on the nature and quality of economic policy. Export-led growth hypothesis states that exports are the key to economic growth. According to Krugman (1987), there are a number of reasons for supporting the export-led growth hypothesis. Firstly, export growth may represent an increase in demand for the country’s output; and this may turn out to increase real economic output. Secondly, the expansion of exports could promote specialization in the production of exports products which may boost the productivity level. The International Monetary Fund (2000) claims that, where sound macro-economic policies have been sustained; such countries tend to increase their economic growth. However, world-wide adoption of export-led growth since the mid-1980s has shown mixed results over the last few years (Zepeda et al., 2009:1). The majority of countries which have managed to achieve and sustain rapid growth have made export promotion the key component of their economic policies; while some other countries that have followed export-led growth policies have experienced low growth rates.

The Ricardo Theory of comparative advantage states that countries should specialize in the production of commodities which are most efficient in producing the latter in relation to other countries – thus trading in such commodities with the rest of the world. In theory, an expansion of exports could encourage economic growth through open trade by shifting goods to sectors in which the economy has a comparative advantage. These sectors often use a great deal of unskilled labour, particularly in developing countries. The results of export-led growth models in Asia have fuelled high expectations for such strategies in Africa. However, over the years, the implementation of the model established by Africa has produced disappointing results.

Over the years, South Africa has transformed its political liberation and its openness to global trade and investment with economic growth that could be shared amongst its entire community. South African exports for manufacture have increased generating export-led growth – but at a slower rate: so as to generate an export-led growth in comparison to that of the East, as well as some other emerging economies (Edwards 2005:3).

Despite its economic transformation, South Africa’s export performance post-1994 has been less than expected. Between

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1984 and 1994, South Africa’s exports grew at an average of 5.7 percent - slightly faster than the 5.6 percent growth of world exports (Flatters et al., 2007:3). It was expected that the end of sanctions and de-regulation of trade and other economic controls would boost South Africa’s exports performance. However, in the past decades since 1994, South Africa’s average export growth, as well as the country’s share of world exports, has fallen.

After 1994, the South African government adopted a number of policies and programmes to restructure the economy, in order to be globally competitive; so as to be able to confront the rapid changes taking place in the world. The outward- looking trade policy adopted by South Africa since the early 1990s has ensured that export growth should play a critical role in government’s Growth, Employment and Redistribution (GEAR) strategy (Amusa et al., 2003:2). The purpose of this strategy was to promote policies that support free market activities in order to strengthen South Africa’s external competitiveness and foster long-term economic growth. In 1994, South Africa joined the Southern African Development Community (SADC) for the purpose of regional integration. Furthermore, in 1999, the country negotiated for a Free Trade Agreement (FTA) with the European Union (EU). The main aim for FTA was to increase access to the strategic market. Improved access to markets has stimulated exports. The reintegration of South Africa into the world economy has led to rapid increases in exports to other regions. The main purpose of this trade policy was to improve and expand exports - in particular as regards manufacturing exports. The impact of this trade policy may be witnessed by the shift in export patterns which has been demonstrated by statistics during the post-1994 period. Several studies have revealed the importance of exports, export-growth and their fundamental determinants in the economy.

The export-led growth hypothesis states that export expansion is an important factor in the promotion of long-run economic growth. However, theoretically, this can be argued that sustained demand growth cannot be maintained in small domestic markets since any economic impulse based on the expansion of domestic demand will inevitably be exhausted (Aktar et al., 2008: 1537). The relationship between exports and economic growth is seen in terms of a long-run; and the emphasis given to the time series analyses has determined a long-term relationship between the two variables. However, the most recent time-series investigations concerning less developed countries have failed to establish a robust relationship between these two variables in the long term

THE EXISTENCE OF LONG-RUN RELATIONSHIP BETWEEN EXPORT AND ECONOMIC GROWTH


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In past decades, a search has been proceeding for that part of growth which has remained inexplicable as regards the equation of economic growth. In the recent past, several other factors contributing to economic growth have been highlighted. Such factors include human capital and increasing returns to scale and trade openness. In a dynamic world, free and open markets may influence long-run economic growth.

However, there is still a debate regarding whether or not trade openness leads to greater economic growth. Some theoretical studies have indicated that there is no clear relationship between trade barriers and economic growth. The degree at which trade impacts on a long-run economic performance has remained a topic of this debate; but economic theory indicates that there is reason to believe that relatively open economies will achieve higher income and more rapid growth than those with substantial barriers (Skipton 2007:2). Theoretical growth literature has paid far more attention to the relationship between trade policies and growth, instead of concentrating on the relationship between trade volumes and growth. Therefore, the conclusion regarding the relationship between trade barriers and growth cannot be directly applied to the effects of changes in trade volumes on growth. Thirlwall (2003) explained why some studies find no clear relationship between trade openness and economic growth. In his explanation, he mentioned that trade – through greater openness – whilst beneficial, may also impose costs in the short term if it leads to a faster growth of imports than exports. This may cause an unsustainable balance of trade.

Due to the difficulty to calculating openness, some researchers have used a variety of measures to examine the effects of trade openness on economic growth. One of the ideal measures of a country’s openness is an index that includes all the barriers that distort international trade – such as average tariff rates and indices of non-tariff barriers. The new growth theory has provided important insights into our understanding of the

(Manap et al., 2004:4); others have been able to establish a long-run relationship, whilst many others have even rejected the export-led growth hypothesis.

According to Tyler (1981), the effect of export on economic growth depends on the level of development of the country and its export composition. Some studies have indicated that the differential impact of exports on economic growth across different countries and regions depend on the level of development and economic structure. Buffie (1992) has argued that, whether or not an export boom acts as an engine of growth depends on the structural characteristics of the economy.

Despite its economic transformation, South Africa’s export performance post-1994 has been less than expected.

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THE IMPACT OF TRADE OPENESS ON THE ECONOMIC GROWTH


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The causality direction between economic growth and exports has very important policy implications. When a relationship exists between export and economic growth, as for example if export growth should lead to output growth, we can continue to explore what has influenced the rate of growth in the past, and what will govern how fast the economy can - and will - grow in the future.

The Granger Causality tests the hypothesis of a growth strategy led by exports, testing whether or not Granger causes economic growth; or whether the causality runs from economic growth to exports; or if there is bi-directional causality between exports and economic growth.

1.1 Model SpecificationThis paper used a Vector Error Correction Model (VECM) to identify the relationship between exports and economic growth. The VECM [which is a special form of the Vector Auto Regressive (VAR)] is used when there is a co-integration of order one I (1) between variables (Griffiths, et al. 2008:347Z) As regards the present paper, Granger causality is used to examine the causality between real exports (EXP) and real gross domestic product (GDP); and it is expected that there should be bi-directional causality between the two variables. An increase in exports results in an increase in domestic output via the so called multiplier effect. On the other hand, an increase in production could result in a decrease in costs due to a realization of economies of scale. According to Bahman-Oskooee (2005), decrease in costs could stimulate exports. Based on these two factors, a relationship between exports and growth would be expected to have a bi-directional causality.

A simple Granger causality test involving exports and economic growth can be written as:

GDPt= α0+α1GDPt-1+α2EXPt-1+ εt (1)EXPt= β0+β1GDPt-1+β2EXPt-1+ εt (2)

relationship between trade and growth (Yanikkaya 2002:61). When growth is driven by research and development (R&D) activities, then trade provides access for a country to advance in technological knowledge of its partners. Then, trade will allow producers to access bigger markets which encourage the development of R&D through increasing returns to innovation. Developing countries with access to investment, and intermediate goods which are important to their development processes are the most beneficiary signs of the openness of trade. Finally, if the introduction of new products is proves to be an engine of growth, then trade does indeed play a significant role in growth by providing access to new products and inputs. Therefore, it can be argued that developing countries may receive more benefit from trade with developed countries, which are technological innovative through trade openness.

EMPIRICAL ANALYSIS


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Where GDP represents economic growth, EXP refers to the exports: εt is the error term and t indicates the time period.

The sample period covers quarterly data from the first quarter of 1960 to the fourth quarter of 2009. This data was obtained from the International Financial Statistics (IFS) published by the International Monetary Fund (IMF).

1.2 Model EstimationCo-integration testing was used to test the existence of a long-run equilibrium (stationary) relationship among economic variables or co-movement of the time series. For this paper, the Johansen procedure was used to examine the question of co-integration. This technique has been used because it has less error involvement due to consisting of only one step.

1.2.1 Cointegration Test ResultsTheoretically, if a co-integration relationship is present, it means that exports and economic growth share a common trend and long-run equilibrium. Tables 1 and 2 below show that the null hypothesis of no cointegration between exports and economic growth is rejected at 1 percent significant level. Both the trace test (table 1) and the maximum-eigenvalue test (table 2) indicate that there is 1 co-integration equation at 1 percent significant level. Hence this paper suggests that there is co-integration between the variables tested. This implies that exports and economic growth have a long-term relationship.

Table 2: Unrestricted Co-integration Rank Test (Maximum Eigen value)

1.2.2 Short Run Causality Test ResultsSince there is co-integration between exports and economic growth, it is best to estimate the model with one error correction term included to capture the short run dynamics by performing the Granger causality test for the VECM. For this paper, the VEC Granger Causality Wald Test was used to test causal direction between exports and economic growth. The χ2 –statistic for the Granger causality test from VECM specification is presented in table 3 (below). The following is the null hypothesis for the variables:

Note: *** indicates rejection of the hypothesis at the 1% level.The Trace test indicates that there is 1 co-integrating equation at the 1% level.

HYPOTHESIZED NO. OF CE(S)

EIGENVALUE TRACE STATISTIC

5% CRITICAL VALUE

1% CRITICAL VALUE

PROB.**

None*** 0.12 33.69 20.26 25.08 0.00***

At Most 1 0.04 7.43 9.16 12.76 0.11

HYPOTHESIZED NO. OF CE(S)

EIGENVALUE TRACE STATISTIC

5% CRITICAL VALUE

1% CRITICAL VALUE

PROB.**

None*** 0.13 26.27 15.89 20.16 0.00***

At Most 1 0.04 7.43 9.16 12.76 0.11

Note: *** indicates rejection of the hypothesis at the 1% level.The Maximum-Eigenvalue test indicates that there is 1 co-integrating equation at the 1% level.

Table 1: Unrestricted Co-integration Rank Test (Trace)


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H0 : EXP does not Granger cause GDPH1 : GDP does not Granger cause EXP

From the results (table 3), it could be noted that the null hypothesis which claims that exports do not Granger cause economic growth, cannot be rejected, implying that exports do not cause economic growth. Regarding the second equation, the hypothesis which claims that economic growth does not Granger cause exports, is rejected. This implies that the causality runs from economic growth to exports (GDP→EXP). These results suggest that economic growth Granger cause exports at 5% significant level. It also means that the increase or growth in the economy of South Africa causes increase in the level of exports. Table 3: VEC Granger Causality Wald Test

H0 WALD TEST/Χ2 PROB. CONCLUSION

EXP does not granger cause GDP 1.11 0.57 No causality

GDP does not granger cause EXP 6.07 0.05** There is causality

Note: ** and *** indicates the rejection of the null hypothesis at the 5% and 1% levels.

The aim of this study was to test if export-led growth strategy is supported by the data and to determine the direction of causality in South Africa. This study has used quarterly data between the first quarter of 1960 and the first quarter of 2009. The study has been constructed on the assumption of bi-directional causality between exports and economic growth. Despite the non-existence of short-term causality between exports and economic growth, there is still room for the development of policy which will put South Africa on the path toward export-led growth.

The nature of the relationship between exports and economic growth has been the subject of discussion for many decades, and South Africa is no exception. Many studies have highlighted a positive relationship between trade openness and FDI; and an outward-oriented trade strategy has been suggested as having a large influence on economic growth (famously known as the export-led growth hypothesis) (Ahmed et al., 2008: 8).

South African economic growth has been one of a long period of decline in the 1970s and 1980s followed by an improving growth performance since the transition of democracy in 1994. GDP growth has fallen steadily, from an average of 6 percent in the 1960s to around 1.3 percent during the 1990s, peaking at 5 percent during the early 2000s. Despite factor accumulation making a large contribution since 2000, the fundamental driver of this growth has been attributed to total factor productivity (TFP), accounting for 60 percent of post-1994 economic growth (Faulkner et al., 2008: 23). Prudent fiscal and sound

CONCLUSION AND RECOMMENDATIONS


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macroeconomic management have been critical factors in creating an environment conducive to growth by stabilising economic conditions.

South Africa has implemented economic policies to stimulate economic growth even before 1994 and exports were pillars of its economy. However, the then political instability which led the country into sanctions by world trade can be blamed for the failure of South African exports to show a significant contribution towards economic growth. Since 1994, South Africa has made undeniable progress across a number of critical areas such as economic growth and trade. But despite these areas of success, there exists a widespread perception that South African real GDP growth has been erratic (Lewis, 2001: 1).

The most pressing problem facing South Africa today is the absence of sustained economic growth which requires strong and reliable economic policy. Among other key challenges facing the country is the high unemployment rate and poverty - which at some points have forced government to concentrate on macro policy concerns, especially the establishment of a credible and prudent fiscal stance and efforts to reduce inflation.

The economy of South Africa has since become more open, more productive and more outwardly oriented as regards the contribution of imports and exports rising strongly as a percentage of GDP. However, according to Flatters and Stern (2007: 3), the country’s export performance is less than what might have been expected.

South African export composition is dominated by minerals and metals, manufacturing products and agricultural products (CIA, 2011). Yet, these industries belong to primary and secondary sectors which contribute an average of 10.7 percent and 23.7 percent to the economic growth of the country, respectively (Stats SA, 2011). Economic growth in South Africa has been, and still is, skills intensive – dominated by the tertiary sector which contributes an average of 65.6 percent. 0n the other hand, South Africa has an abundance of unskilled and semi-skilled people (Eastern Cape Economic Outlook, 2010). The tertiary sector consists of services from both private and government institutions. These services mostly rely on imported machinery and technology, while government spends on imported material for infrastructure. Basing this on the current economic structure in South Africa, it will not be easy for the economy to enjoy an ideal situation of export-led growth.

This study finds no causal effects from the direction of exports to economic growth in South Africa. Thus, to boost the economic growth of the country, South Africa should promote the diversification of its export market and encourage domestic and foreign investment. Due to its resource-based products, the country has failed to diversify into new and fast growing export sectors. According to Edwards (2003), over the years, exports of manufactures have increased; but not enough to

The most pressing problem facing South Africa today is the absence of sustained economic growth which requires strong and reliable economic policy

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18

generate an export-led growth boom similar to those of East Asia and other dynamic emerging economies.

A strong intervention in the primary and secondary sectors is needed, not only to dilute the high rate of unemployment rate in the country, but also to increase production in sectors that can promote exports. By doing so, more products can be exported which may significantly contribute towards the economic growth of the country.

Trade policy is also very important. The choice of exchange rate policy plays a role in the international competitiveness of a country. More flexible trade policy is an advantage in a country like South Africa which is considered as the gateway to other African countries.

The Keynesian approach of government spending to stimulate economy and creating employment is more relevant in the context of South Africa, especially now that government has set a target of 5 million jobs to be created by 2020. However, in most cases, government spending is mainly on infrastructural activities which in most cases promote imports rather than exports. The challenge of developing rural areas remains a high priority for South Africa. The population of South Africa is mostly rural based with the majority being semi-skilled and unskilled people. The rural areas have a potential of being more productive towards primary and secondary sectors which dominates exports in the country. The development of rural areas, among other factors, is to improve market accessibility for rural trading which can contribute in increasing production that may potentially be exported.

The government has created Industrial Development Zones (IDZs) to promote exports and stimulation of growth. The creation of such IDZs aims is to attract foreign-based industries to invest in the country. However, this may end up promoting imports since most activities rely on input from abroad for production. This situation does not help the current trade deficit the country has been experiencing over the years. Government needs to dilute investment attraction in the IDZs by focusing on locally-based industries, particularly those operating under the primary and secondary sectors.

Despite the danger of relying on international markets, proved by the recent recession, exports remain one of the main pillars of economic growth. Most developed economies dominate trade through exportation of their products. In the long run, it will benefit the South African economy if government develops a policy aimed at promoting export-led growth.

A strong intervention in the primary and secondary sectors is needed, not only to dilute the high rate of unemployment rate in the country, but also to increase production in sectors that can promote exports.

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Ahmed, A.D. Cheng, E. & Messinis, G. (2008.) The Role of Exports, FDI and Imports in Development: New Evidence from Sub-Saharan African Countries. Working Paper: Centre for Strategic Economic Studies, Victoria University.

Aktar, I. and Taban, S. (2008.) An Empirical Examination of the Export-Led Growth Hypothesis in Turkey. Economic Journal of Yasar University, Vol. 3, No. 11, pp. 1535 – 1548.

Amusa, H.A. and Bah, I. (2003.) Real exchange rate volatility and foreign trade: evidence from South Africa’s exports to the United States. The African Finance Journal, Vol. 5, No. 2, pp. 1-20.

Caliari, A. Canuto, O. & Zepeda, E. (2009.) Export-Led Growth as a Tool for Financing Development: Is the Financial Crisis Revealing its Limits?

Edwards, L. (2003.) Proposal: An Analysis of the Determinants of South African Export Performance.

Faulkner, D. & Loewald, C. (2008.) Policy Change and Economic Growth: A Case Study of South Africa. Policy Paper: National Treasury of the Republic of South Africa.

Flatters, F. & Stern, M. (2007.) Trade and Trade Policy in South Africa: Recent Trends and Future Prospects. Development Network Africa, Policy Paper, pp. 3 – 26.

Griffiths, W. Hill, C. and Lim G. (2008.) 3rd edition. Principles of Econometrics. Hoboken: Wiley & Sons.

Lewis, J.D. (2001.) Policy to Promote Growth and Employment in South Africa. Trade and Industrial Policy Strategies: World Bank.

Manap, T.A. & Shirazi, N.S. (2005.) Export-Led Growth Hypothesis: Future Econometric Evidence from South Asia. The Development Economics Paper, pp. 472 – 488.

Mohr, P. (2007.) Economic indications. 3rd edition. Pretoria: University of South Africa.

Rangasamy, L. (2008.) Exports and economic growth: the case of South Africa. Journal of International Development, Vol. 21, pp. 603 -617.

Skipton, C. (2007.) Trade Openness, Investment, and Long-Run Economic Growth. Working Paper presented at the Southern Economics Association (SEA).

Snowdon, B. & Vane, H. (2005.) Modern Macroeconomics. 8th edition. Cheltenham: Edward Elgar. The Eastern Cape Socio Economic Review and Outlook, 2010. United Nations, 2010. South African Millennium Development Goals Country Report.

REFERENCES


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Vohra, R. (2001.) Export and Economic Growth: Further Time Series Evidence from Less-Developed Countries. International Advances in Economics Paper, Vol. 7, No. 3 pp. 345 – 350.

Yanikkaya, H. (2003.) Trade Openness and Economic Growth: A Cross-country Empirical Investigation. Journal of Development Economics, Vol. 72, pp. 57 -89.

Zepeda, E., Caliari, A., Canuto, O., Kassaja, M.J., Kiiru, J., Mattar, J., McKinley, T. & Mermet, L. (2009.) Export-led growth as a tool for financing development: is the financial crisis revealing its limits? Carnegie Endowment for International Peace.

INVESTING FOR THE GOOD OF ALL: A NEW APPROACH TO PENSION FUND INVESTMENT, AS THE GLOBAL ECONOMY REMAINS ON LIFE SUPPORT


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The global financial crisis has had a profound and lasting impact on the way assets are priced. The bursting of the US house bubble which peaked in 2006, caused the values of securities to plummet, affecting all asset classes. Just when it seemed as though the global economy was recovering from the recession of 2007/08, current economic uncertainties and volatile markets continue to plague the investment world. Economic data and confidence indicators deteriorated in 2012, due to volatile, rising unemployment; as well as the Euro zone sovereign debt and banking crisis, thus slowing growth in emerging markets. Because of the United States’ mounting social unrest, much

INVESTING FOR THE GOOD OF ALL:

TO PENSION FUND INVESTMENT, AS THE GLOBAL ECONOMY REMAINS ON LIFE SUPPORT

A NEW APPROACH

Ayodeji Olaifa (Stanbic Nigeria) Idriss Mouchili (Coega Development Corporation)

INTRODUCTION


22

public resentment has been evidenced vis-à-vis public resentment towards corporate behavior; as per example in Japan, and the United States’ increasing debt stock.‘

Risk assets and bonds continue to suffer massive volatilities1, with some countries benefiting from cheap funds and others having to borrow at excruciatingly high rates2 as news of uncertainties spread - buoyed by the States’ inability to agree on an immediate, effective solution to containing the spread and contagion of this crisis.

Current market volatility and expensive bond prices frighten off institutional investors looking for steady low-risk returns, forcing them not only to readjust their asset allocation strategies3, but also to rush into perceived ‘safe havens’, with the unintentional consequence of elevating bond prices even further. In a normal economic situation, such a drop in yields would probably also increase the investor’s appetite for risk assets (equities), and as such, would drive the equity market recovery; however because of so much uncertainty and volatility, investors have been happy to safeguard funds even at little or no yield4.

This apparent deterioration of risk-adjusted returns in sovereign debts and risky assets puts enormous pressure on pension funds (PFs) to search for yields, likewise creating opportunities for alternative investments (AIs).

As economies grapple with widespread liquidity and debt crisis, PFs are being called upon to act as Venture Capitals. It is recognized that pension funds may have impacts beyond the rate of return, including collateral benefits or what is commonly referred to as triple – line investment objectives5. This paper provides evidence that PFs investment in AIs and in Socially Responsible Investments (SRIs) could provide an adequate return with a different risk profile for traditional investments.

The paper is organized as follows. Section 2 presents the literature review. Section 3 discusses the rationale of PFs investment in SRIs and section 4 concludes the paper.

1. The S&P 500 was up 6.5% in April 2012 from a year earlier only to lose almost all the gains by

June 2012. The Dow Jones suffered a worse fate; it dropped from a high of 3.7% in May, from a

year earlier before shedding 8.7% in June 2012 (Http//www.futuresmag.com)

2. German ten year government bond yield is just about 3%, and Spain and Italy over 5%, as of

mid-March, 2012.

3. At the end of 2011, average global asset allocation for pension funds was 37.7% Equities,

40.1% Bonds, 3.1% cash and 18.5% other assets. Allocation to Bonds has increased, while

allocations to equities have fallen. (Towers Watson 2012)

4. Japan and the USA continue to benefit from low interest rates even though these economies

are not out of the woods as yet, and face a growing debt stock. This in itself creates further

concern for a renewed global crisis if no measures are taken to mitigate the risks.

5. These are financial, social and environmental benefits.

As economies grapple with widespread liquidity and debt crisis, PFs are being called upon to act as Venture Capitals. It is recognized that pension funds may have impacts beyond the rate of return, including collateral benefits or what is commonly referred to as triple – line investment objectives.

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Many papers have been written on the subject of economic development, socially responsible investments, alternative investments and similar concepts. In order to ensure proper contextualization for this work, some definitions and literature review is required.

1.1 Economic growth vs. economic developmentEconomic development is often interchanged with economic growth. The term ‘economic growth’ is however used to measure the wealth of nations and individuals in the form of gross domestic product (GDP); whilst economic development combines both qualitative and quantitative indicators to represent the well-being and quality of life of the people. Furthermore, and according to Seers (1967), development is about outcomes and occurs along with the reduction and/or elimination of poverty, inequality and unemployment within a growing economy.

1.2 Socially responsible investments (SRIs) and economically-targeted investments (ETIs)SRIs6 have also been referred to as Ethical investments, Responsible investments or Impact investments. SRI’s include investments that are aligned with investors’ values. It advocates the integration of personal and social concerns with investment decisions so that asset classes can earn competitive returns while building a better tomorrow. Its main thrust is sustainable investing by institutional investors. It may involve negative or positive screening and targeted investments in some cases, shareholder activism by investors.

SRIs is largely driven globally by the United Nations Environment Program – Finance Initiative (UNEP-FI) and it’s Principle of Responsible Investments (PRI) – with an increasing number of large institutional investors as signatories to this principle.

Similarly, ETIs is a scheme for using the funds of both public and private pensions to invest in infrastructure projects (bridge, water plants, etc.) that benefit communities. ETIs also provide good returns by energizing undercapitalized markets while simultaneously improving local communities and economies.

1.3 Pension Funds and economic developmentPFs are an integral part of a nation’s social security system, and are usually established by an Act of government. They are also referred to as a tax-efficient savings vehicle for workers.

PFs rest on a number of pillars, varying from country to country. They can be funded or non-funded, contributory of non-contributory, privately or publicly managed, and

LITERATURE REVIEW

6. SRIs are grouped as follows: Real estate, Pooled funds (make equity and debt investments),

Mortgage backed securities, Fixed income funds, Public equity (environmental, social and

governance issues into investment process), Cash deposits (community development)


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employer sponsored or individual retirement saving accounts, compulsory or voluntary7.

On a macro-economic level, PFs assets exist in order to provide benefits to its members and their dependents as protection against poverty in later years.

PFs are one of the largest custodians of accumulated wealth8, and its assets are generally invested in the capital markets. The trustees are, amongst other things, given the responsibility of safe-guarding and managing these assets in line with an existing regulatory framework.

PFs investments in economic development projects can take either an indirect or a direct form. Indirect investments occur when PFs invest in fixed income instruments or the equities of companies linked to the construction or management of infrastructure projects. Indirect investments of this nature provide the asset portfolio with some specific characteristics of risks and profitability that are specific to this sector; meanwhile the acquired assets may belong to listed or unlisted companies. Direct investments consist of PFs seeking new categories of assets that would diversify their asset portfolio in order to limit their exposure to market volatility. Through project finance or a public-private partnership model, the pension funds acquire assets linked to the return provided by an infrastructure, which can more or less be insured by the state or financial institutions. Infrastructure projects tend to have a greater impact on the economy as the availability of certain facilities such as schools, hospitals, public sewage, access to drinking water, electricity and telecommunications are elements that have a direct impact on the wellbeing of households. These infrastructural projects are not only used as a means of production, but also have an important social function that translates into economic development.

1.4 Alternative Investments (AIs)Alternative investments (AIs) include physical assets such as natural resources or real estates, and novel investing methods such as hedge funds and private equities. It could also refer to responsible investment strategies that make use of asset classes different from traditional stocks, bonds and cash (Jefferson Capital Partners 2012, 1)

AIs provide new sources of returns and better risk diversification in investments, by offering PFs better protection against market volatilities, inflation and interest-rate risks (Inderst 2008, 4). It also provides a more responsible way of investing, in line with growing investor concern.

AIs have become very popular among institutional investors for the afore mentioned reasons; and therefore its ability to achieve

7. PFs can also be a combination of different structure, often referred to as Hybrid structures.

8. Total global PF assets is estimated to be USD30.9trillion (Towers Watson)



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9. A theory further developed by Harry Markowitz (Modern Portfolio Theory), 1952

good returns both in bullish and bearish markets alike, by exploiting market inefficiencies. AIs have outperformed global asset allocation funds by an average of 8.5% in the nine years of 2000/10 (CMG 2010, 5).

1.5 Risk/ReturnIn an efficient market, risk is inversely related to returns. Portfolio management involves maximizing total returns while keeping overall risks at an acceptable level. One of the ways of achieving this is through portfolio diversification.

Portfolio diversification9 seeks to build a portfolio with investment asset classes that offer different levels of risk and react differently to market events; and by so doing, investors strive to reduce overall risk and improve overall performance (Global Impact Investment Network 2011).

A given portfolio variance is defined as: where and is the correlation coefficient between the returns on assets and , and are the weight in the portfolio of asset and respectively.

An idea initiated by Markowitz stipulates that investors can reduce their exposure to individual assets by holding a diversified portfolio of assets. Every possible combination of risky assets can be plotted in a risk-expected return graph, and the collection of all such possible portfolios defines an efficient frontier (Figure 1).

Figure 1: Efficient frontier with or without a risk-free asset

Source: Global Association of Risk Professionals (GARP), 2010

Modern Portfolio Theory (MPT) therefore argues that investors should focus on selecting diversified portfolios based on their overall risk rewarding characteristics instead of merely compiling portfolios from securities that each individually has alternative risk-reward characteristics. Investors are able to reduce portfolio risk by simply holding a combination of assets that are non – correlated. This forms the basis of advocating PFs investment in


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10. IMF President

11. AIs share of total global pension assets have grown from 5% in 1995 to 19% in 2011 (Towers

Watson 2011)

12. Brazil, Russia, India, China and South Africa

13. These countries have embarked on a big infrastructural spend by floating long term

infrastructure bonds open to investors globally, or borrowing at cheap rates where possible.

AIs, SRIs and infrastructure-like projects, which could provide a much needed and truly diversified risk (during extreme market volatility) for a given return.

INCLUSIVE INVESTMENT IN GROWTH & DEVELOPMENTMarkets are of great relevance to PFs as approximately 40% of its assets are invested in the stock market, with the rest in bond and real estate. The 2007/08 financial crisis increases the concerns about the retirement prospects of many PFs. Fallen assets, job loss, unemployment, salary cuts, increasing cost of living, and high indebtedness combine to form a vicious circle of depressed PFs values and reduced contributions. Christine Lagande10 in 2011 puts it succinctly when she says:‘Recoveries in the world economy are being thwarted by balance sheet pressures. There is still so much debt in the system, weak growth and weak balance sheets of governments, financial institutions and households are feeding negatively on each other, fuelling a crisis of confidence and holding back demand, investments and job creation’.

This ongoing economic turmoil and market volatilities are forcing investors to adjust their risk/return strategies. PFs have to settle for safety at the expense of decent returns, which may in turn hamper their ability to achieve defined long-term returns targets, or meet their liability.

It is at times of such financial and economic hardship, slowing economic growth and rising unemployment, that investment in AIs can act as a catalyst for growth11.

Particularly in emerging and developing countries, PF investments in AIs can provide the venture capital to finance the huge infrastructural budget and goals.

For example, the slow growth recorded in most of the emerging markets, particularly the BRICS12 nations, in the last two quarters can be largely attributed to a sharp decline in manufacturing/capacity as a result of poor infrastructure. Apart from the fall in global demand for commodities, Brazil, India and South Africa 13 in particular suffer from capacity constraints, and will have to invest heavily in repairing ailing infrastructure, whilst putting new ones in place). The above highlights the huge gap in responsible investing by PFs;



27

and if the escalating need for a more comprehensive social welfare in both developing and developed societies is to be taken seriously, businesses will have to take on the challenge of partnering with the state to providing the required economic growth.

PFs, by their sheer size, need to leverage their indirect control over investment and management decisions, in order to influence businesses into aligning themselves with broader goals (UNEP - FI 2007, 40)

The African Development Bank (AFDB) is advocating African countries to put five percent of their monetary reserves/PFs assets in infrastructure development funds to speed up development in rail, water, ports and energy. This is a significant impetus as regarded the development of AIs, considering that only about 0.28 percent of total global pension assets are invested in SRIs (Towers Watson 2010).

South Africa has published a R3.2 trillion 10 year infrastructure development budget, and is looking at establishing an infrastructure development bond, prompting the minister for economic development to hint that South African PFs may be forced to invest at least five percent of assets in development funds going forward.

These and many others are opportunities for PFs to achieve their risk/return objective in a low yield environment. Investments in infrastructure are a long-term venture and are adjusted for appropriate risk, so as to be capable of generating good returns and low correlation to traditional classes of assets, whilst also achieving sufficient collateral benefits for the fund members.

In an exercise conducted by the real estate and infrastructure division for the asset management arm of Deutsche Bank, the returns of an average traditional asset allocation portfolio (60% equities and 40% fixed income) and that of a sophisticated or alternative investment portfolio (45% equities, 25% fixed income and 35% AIs) were compared. It was found that the traditional asset allocation portfolio would have delivered strong results up to 1998 with sharp losses in 2000 during the Asian and IT bubble crisis; while the sophisticated/AI portfolio was relatively insulated. It also established that between 1998 and 2007, a portfolio that included AIs would have better withstood the economic shocks and market volatilities, delivering a 9.6% annualized return, compared to 8% generated by the traditional portfolio. At the same time, an AI portfolio would have reduced risk with a volatility of 12% compared to 13.7% for traditional portfolios within the same period (RREEF 2007). In line with international trends, asset managers in South Africa have reduced their equity allocations for pension funds from the maximum permissible allocation of 75% to an industry average of 51%14. Table 1 shows top South Africa’s asset managers asset allocation.

14. In reaction to the increasing market volatility and higher yields in fixed income funds, some

of the funds also increased their foreign exposure to take advantage of cheap foreign assets and

the strong Rand.

South Africa has published a R3.2 trillion 10 year infrastructure development budget, and is looking at establishing an infrastructure development bond, prompting the minister for economic development to hint that South African PFs may be forced to invest at least five percent of assets in development funds going forward.

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15. Largest social impact of PE investments in South Africa can be seen in Black Economic

Empowerment (BEE) deals, leading to BEE ownership of 26% of the JSE listed companies.

16. n North America, PFs allocate close to 8.2% of assets to private equity investments, and

similarly socio-economic development in South Africa is largely promoted by private equity

through black economic empowerment management and participation.

Table 1: Top investment managers asset allocation of balanced funds as at 31st December 2010

Private equity (PE) investments serve a distributive role in the economy by increasing incomes and assets for the poor and vulnerable, creating jobs and improving labour relations, mitigating the effects of climate change, market volatilities, financial and economic crisis, and ensuring that future generations are not prejudiced by the consequences of today’s investment activities. It helps to deepen capital markets through investing in startup companies and new listings. It is also noteworthy to mention that PE investments are not just merely a ‘look – good – feel good’ investment; globally delivering an average of 39% annualized returns between 1980 and 2007. Despite the sharp fall in asset value during 2007/08, PE performance has surpassed the performance of equity markets. Five year PE investments returned 12.2 % on an annualized basis15.

Creating an environment where AIs capital is available helps to spur on economic development, and supports the formation of a strong and well-managed economy.16

INVESTMENT MANAGERS

SA EQUITIES (%)

SA BONDS (%)

LISTED PROPERTIES

PHYSICAL PROPERTY

SA CASH (%)

SA ‘OTHER’ (%)

TOTAL SA ASSETS

FOREIGN

Allan Gray 45,29 10,67 0,62 0,00 17,09 3,59 77,26 22,74

Coronation 45,21 18,26 3,94 0,00 7,20 0,00 74,61 25,39

Foord 59,26 1,61 7,29 0,00 7,86 5,23 81,25 18,75

Investec 58,71 9,81 4,07 0,00 10,07 0,00 82,66 17,34

Metropolitan 60,57 8,77 0,00 10,68 2,94 0,00 82,96 17,04

Oasis 56,26 14,07 0,00 6,58 4,36 0,00 81,26 18,74

Omigsa Macro Strategy

52,70 7,19 6,61 0,00 15,24 0,64 82,37 17,63

Prudential Global Balanced

50,70 14,99 4,19 0,00 10,76 0,00 80,65 19,35

RE:CM 45,05 4,11 0,00 0,00 31,91 0,00 81,07 18,93

RMBAM 56,86 9,34 2,38 0,50 12,03 0,00 81,11 18,89

SIM Global Unique

54,17 8,11 4,56 0,00 10,77 3,71 81,32 18,68

Stanlib 51,48 8,68 3,55 0,00 20,71 0,06 84,48 15,52

Prudential Global Balanced

50,70 14,99 4,19 0,00 10,76 0,00 80,65 19,35

Source: Global Association of Risk Professionals (GARP), 2010



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PFs are the principal sources of retirement income for millions of people. They are also important contributors to the GDP of countries and a significant source of capital in financial markets. PFs can be analyzed as systems which receive inputs in the form of contribution (labour, firms, households, government) and investment funds (local savings and from the rest of the world), whilst investing these inputs and delivering retirement benefits and higher asset value for a given level of risk tolerance17. The risk in today’s markets has fully materialized and it does not matter if it is hyperinflation or a deflationary scenario. The downside of a runaway global credit expansion and historically prolonged low interest rates seems unavoidable. And if this happens, the 2007/08 global financial crisis may be repeated with a near collapse of almost all categories of assets. By investing in SRIs and ETIs, PFs will have a different risk profile that may shield their values from a sudden market collapse. In addition, SRIs and ETIs tend to include programmes that expand employment opportunities in a particular geographical region, increase the availability of affordable housing, strengthen capital infrastructure, help rural economies, and support green industries by developing small and medium enterprises (SMMEs).

Since 2011, social tensions throughout the world have caused a series of protests and civil unrests across the Middle East, the US, various parts of Europe and more recently, in South Africa18; thus giving rise to the call for real and inclusive long-term growth: one that provides a shared, real prosperity and decent job creation in a global economy (GEPF 2010).

PFs by virtue of their size19 are able to impact the way and manner in which businesses invest and conduct their affairs. One of the many ways PFs have reacted to ongoing uncertainties and calls from investors for a more responsible way of investing is to reduce their risk-asset portfolio and to incorporate environmental, social and governance (ESG) issues into their investment principles. Policy-makers have exerted incredible power to intervene in the markets since the 2007/08 financial crisis, and to bolster both confidence and the economy. Nevertheless, it is unequivocally certain that the global risk created by an ever-increasing quantity of money and credit; as well as the call from a disillusioned population for a more inclusive economic growth and wealth distribution. PFs could contribute in closing that gap.

17. Often calculated by the Sharpe ratio , which measures the excess return over a benchmark

index and per unit of risk

18. 2011 UK riots and Occupy Wall Street and the mining workers protest in South Africa where

over 30 miners were killed by the police in 2012.

19. According to the 2012 Towers Watson report, global pension assets hit 30.9 trillion USD in 2011.

CONCLUSIONIt has been established that PFs investments in traditional asset classes tend to overreact to extreme market volatilities.


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REFERENCES

The 2007/08 financial and economic crisis and subsequent aftershocks20 continue to create uncertainties in global markets, re-enforcing the flight of investors, not only from emerging markets, but also from risky assets to government bonds and other instruments perceived as stable.

PFs faced with fallen assets and declining yields will have to examine new approaches to investing. The search for less volatile returns, while targeting the needs of the population, has opened up new opportunities for more responsible investing. Evidence shows that AI’s are vehicles which could promote infrastructural and economic development, particularly in developing nations, serving as an alternative to foreign aids or expensive loans. AIs are capable of achieving good returns adjusted for risks, whilst also ensuring collateral benefits for the public at large. Funds that invest directly in dedicated SRI funds or in publicly listed companies which take SRI or ESG issues into consideration in their investment decisions will have a more direct impact on the economy; while funds that do not have specific SRI policies but invest in publicly listed companies could have a indirect impact on the economy, through the deepening of the capital market and overall financial system.

PFs have been largely instrumental in the drive for ensuring that businesses ‘do the right thing’ and a number of big PFs have committed to the UNEP – FI Principles for Responsible Investing. In this sense, PFs have the power to affect social, economic and environmental outcomes of countries in a way that not only boosts the economy, but also takes into account the livelihood of the population and the environment (Giamporcaro, 2010).

Cadiz. (2010.) Socially Responsible Investments.

CMG Management group. (2010.) Absolute Return Strategies: Incorporating Alternative Investments with Traditional Asset Classes.Freshfields Bruckhaus Deringer. (2009.) A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional FSB, 2007. Report of the Registrar of Pension Funds: Forty Eight Annual Report- 2006.

Government Employee Pension Fund. (GEPF). (2010.) Responsible Investment Implementation: Integrating ESG Issues in InvestmentsGiamporcaro Stephanie. 2010. Environmentally Responsible Investment in South Africa: The state of play. A survey of responsible investor opinions and practices.

Giamporcaro, Stephanie. (2010.) Responsible Investment Strategies, A survey of approaches and perceptions.

Inderst , G. (2007.) Pension fund investment in infrastructure.

20. US Debt ceiling , EURO Sovereign debt and its banking crisis.

PFs have been largely instrumental in the drive for ensuring that businesses ‘do the right thing’ and a number of big PFs have committed to the UNEP – FI Principles for Responsible Investing.

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Inderst, G. (2009.) Pension Fund Investments in Infrastructure. OECD Working Papers on Insurance and Private Pensions. No 32 OECD. Paris.

RREEF Research. (2007.) Alternative Investments in Perspective.

Sen, Amartya. (2000.) Development as freedom. Oxford Univer-sity Press.

Simutanyi, Neo. (2006.) The state and economic development in Africa; challenges for post-apartheid South Africa.

Social Investment Forum, viewed 15 July. (2009.) http://www.socialinvest.org

Watson Towers. (2011.) Global Pension Asset Study 2011.

Whaites, Alan. (2008.) States in Development: Understanding state-building. A DFID Working Paper.

THE STATE SPACE (SSPACE) MODEL APPROACHSOUTH AFRICA:Abdou Semiyou Rafiou (Coega Development Corporation)

INFLATION DETERMINANTS IN

INTRODUCTION


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The inflation rate is defined as the change in prices of goods and services. Statistics South Africa (StatsSA) is officially responsible for calculating the changes in the inflation rate and the reserve bank to control its level in South Africa. High levels of inflation are not desired as this is associated with many consequences. An increase in the rate of inflation means that ordinary people will be able to buy fewer goods with the same amount of money since inflation refers to a change in prices. Controlling inflation means understanding how it arises. This implies that a measure to control inflation should be in line with how inflation emanates.

The questions this study will then investigate are as follows:• WhichfactorsdrivetheinflationrateinSouthAfrica?

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INFLATION DETERMINANTS IN SOUTH AFRICA: THE STATE SPACE (SSPACE) MODEL APPROACH


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• WhatmodelshouldexplaininflationbetterinSouthAfrica?

The causes of inflation in South Africa have been studied before, but advances in econometric techniques and the availability of a longer data series make this is an opportune time to revisit the issue. Truu (1975) highlighted the structural nature of inflation in the South Africa and the causal role of imbalances between claims and resources.

By contrast, Strydom (1976) and Strydom and Steenkamp (1976) concluded that the 1960s were characterised by demand-pull inflation coupled by monetary expansion, while the inflation’s acceleration in the early 1970s mainly reflected cost-push factors owing to successive devaluations of the Rand. However, Strydom (1976) claimed that other institutional factors such as increases in indirect taxes and wage pressures were correlated to the inflationary process in the early 1970s, but were not the key causal factors behind the acceleration of inflation during that period.

Fourie (1984) and Dollery (1984) argued that the effectiveness of anti-inflationary demand policies can be hampered owing to the moderate responsiveness of prices to demand conditions and the relatively concentrated nature of economic activity in South Africa. Fourie (1991) confirmed this finding in a later study using better data.

The final report of the De Kock Commission (1985) emphasised the monetary causes of inflation in South Africa. This report claimed that alternative causes (tax increases, wage increases in excess of productivity growth, imported inflation and inadequate competition) were found to have had a much smaller effect on inflation. The Commission’s analysis was criticised by Mohr (1986) in the Commission’s report. He argued that the Commission’s method of analysing the impact of each potential cause in isolation is weak. He pointed out that the Commission’s strong bias for monetarist views precluded an objective analysis of the determinants of inflation in South Africa. According to him, a methodology that takes cognisance of the relationships between factors would have produced more sensible results. In the same way, Moore and Smit (1986) and De Wet et al. (1987) found that wage increases have had a powerful impact on inflation in South Africa.Furthermore, Pretorius and Smal (1994) confirmed that changes in labour costs, largely driven by inflation expectations, are crucial elements influencing prices in South Africa. Using an expectations-augmented Phillips curve framework to investigate the link between inflation, unit labour cost, the output gap, the real exchange rate and inflation expectations, Fedderke and Schaling (2000) found robust evidence for mark-up behaviour of output prices over unit labour costs.

In 2005, Woglom suggested that the current output gap is relevant to determine inflation, as suggested by the theory of the modern Phillips curve. In addition, the price of imported producer goods and short-term interest rates appear to have important forecasting power. He asserted that the price of imported goods captures information on the effect of the


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exchange rate on domestic price inflation and short-term interest rates capture the effects of current monetary policy on future levels of aggregate demand. Somewhat surprisingly, measures of wage inflation do not appear useful in explaining consumer price inflation. More recently, the South Africa’s Reserve Bank MPC highlighted the impact of cost-push effect on inflation in the country.

Therefore, the aim of this paper is to revisit this unresolved debate as to whether inflation in South Africa is caused by the demand or supply side of the economy and provide some conclusion thereof. To answer this question it is useful to know the difference between Demand-pull and Cost-push inflation.

It is sufficient to note here that most of the discussion of inflation in South Africa centres on two schools of thought: cost-push and demand-pull. The cost-push advocates assert that the source of rising prices is not excess demand but rather market power that permits either wage to be raised by strong labour unions, which results in price increases as wage costs are passed on to the consumer, or prices to be increased directly by oligopolistic firms. Then, according to this view, the money supply is passively increased as the monetary authority validates the inflation to avoid unemployment.

In contrast, demand-pull adherents assert that the cause of inflation is an increase in money demand or too much money chasing too few goods. Rather than responding passively, the monetary authority actively determines the rate of inflation by permitting an excessive rate in the nominal stock of money. At first glance it would not appear difficult to distinguish between cases of inflation, which are due respectively to the push of wage increases and to pull of demand. From this perspective which model can explain properly demand-pull or cost-push inflation in South Africa?

Demand-pull model: The price inflation equation in the money demand model is based on the view that inflation is caused by growth in money supply in excess of growth in real money demand:

Pt = Mt/mdt (1) can be used to illustrate this relationship, where:

DISTINCTION BETWEEN COST-PUSH AND DEMAND PULL IN INFLATION

PRESENTATION OF THE MODELS



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Pt is the price level; Mt is the actual level of money balances; and mdt is the public’s demand for real money.

The public’s demand for real money balances can be expressed by the following equation:

log(mdt) = α0 + βlog(Yt) – γ0it (2)

where:

Yt is nominal income and i is the 10-years government bond.

From equation (3) and (4) and because we want to forecast inflation, we have:

π = ∆m + ∆y + i (3)

where:

π is the inflation, m is the natural logarithm of money supply.

Cost-push model: The wage and price models in this study mainly originate from the combination of Woglom (2005) and Fedderke and Schaling (2000) theoretical analysis. Thus, the final equation is as follows:

π = γ(mgdp) + δ(ulc) +λ∆(ipi) (4)

where mgdp is output gap, ulc is natural logarithm of unit labour cost and ipi is natural logarithm of import prices indexes

Because the period of study was characterised by significant structural, political and institutional changes, it would be biased to use a simple OLS technique. The impact of institutional changes or structural breaks is usually difficult to model with a simple linear regression. To account for these effects, we use a smooth non-linear stochastic trend (SSpace or Kalman filter applied to time-varying coefficients) to help capture such shifts. The SSpace model estimates a process by using a form of feedback control: the filter estimates the process state at some time and then obtains feedback in the form of (noisy) measurements. As such, the equations for the SSpace model fall into two groups: measurement update equations and time update equations. The time update equations are responsible for projecting forward (in time) the current state and error covariance estimates to obtain the a priori estimates for the next time step. The measurement update equations are responsible for the feedback for incorporating a new measurement into the a priori estimate to obtain an improved a posteriori estimate.

The time update equations can also be thought of as predictor equations, while the measurement equations can be thought of as corrector equations. Indeed, the final estimation algorithm resembles that of a predictor-corrector algorithm for solving numerical problems.

The long-run cause of inflation in South Africa was cost-push inflation during the period of study.

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The econometrics form of this model using the cost-push equation is as follows:

πt = γt(mgdp)t + δt(ulc)t + λt(ipi)t + εt represents the measurement equation and (5)F δt = Ft δt-1 + ut represents the state equation. (6)

πt is therefore the observation on the system and δt is the state vector. The random variables εt and ut represent the measurement and state disturbance or noise respectively. They are assumed to be independent of each other, white and with normal probability distribution, meaning that:

p(ε ) ~ N(0,Q)p(u) ~ N(0,R)p(ε ) and p(u) stand for probability distribution of the errors ε and u respectively andQ is the covariance of the measurement while R is the covariance of the state noise.

Because of its recursive character, the estimation of this equation necessitates the determination of the initial estimate of the state vector β0 at time t=0 and of its variance matrix. It is assumed that (mgdp)t, δt(ulc)t, λt(ipi), Ft, Q and R are known for all t= 1,….n , the same as the initial estimate for the state vector and its variance matrix. With a set of information at time t given as It= {y1,…,yt} and given the initial estimate x0 for the state vector β0. The Sspace equation determines the state vector estimates and their associated variance matrices.

The empirical analysis in this paper is based on the following inflation models:

1.Demand-pull model: πt = α + βt∆mt + γt∆yt + ht it + µt1 ht = Ft ht-1 + νt 2.Cost-push model: πt = ά + γt(mgdp)t + δt(ulc)t + λt(ipi)t +εt (7) F δt = Ft δt-1 + ut (8)

These equations are relevant for the estimation of models characterized by time-varying coefficients. Pagan (1980) shows that the time-varying coefficient model can be written into SSpace form so that the likelihood function can be easily calculated by the Kalman filter algorithm.

The SSpace technique will be used in this study.

EMPIRICAL ANALYSIS1.1 Data In this study, inflation is measured as a percentage change of the consumer price index four quarters ahead (π = log(CPIt) – log(CPIt-4)). One way to define the output gap is to understand it as the difference between actual output and an underlying



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The results of the SSpace estimation (see Table 1) can be interpreted as follows. The model has been fitted on 165 observations and needed 142 iterations to achieve a converting solution. At the convergence, the maximum of the log likelihood is equivalent to 307.4165. During 1971Q1 to 2012Q1 only the 10-years government bond is statistically significant. These results confirm some of the studies which concluded that inflation in South Africa was not driven by demand-pull. The results from the table above also show that the growth rate of M3 does not appear useful in explaining inflation in South Africa.

unobserved trend towards which output would revert in the absence of business cycle fluctuations. We have defined the trend as the average of the natural logarithm of output (GDP) in our study. The output gap is measured as: mgdp = log(GDP) – average(log(GDP)). y represented the natural logarithm of output (y = log(GDP)). Since the empirical literature is not consistent in its opinion about which monetary aggregate is correlated more with the price level, we will use M3 (m = log(M3) in our study.

To assess whether inflation is caused by forces from the demand or supply side of the economy we used the quarterly data series obtained from StatsSA and reserve bank databases.

For the demand-pull model we used:

• CPI,GDP,andM3from1970Q1to2012Q1and• 10-yearsgovernmentbondfrom1971Q1to2012Q1.• Forthecost-pushmodelweused:• CPIandIPIfrom1970Q1to2012Q1and• GDPandULCfrom1971Q1to2012Q1.

1.2 Money Demand Model We started by estimating a multivariate regression demand-pull equation between 1971Q1 and 2012Q1 using the Marquardt optimization algorithm. Table 1 shows the estimation result.

Table1: SSpace regression of demand-pull model: π = ∆m + ∆y + i

METHOD: Maximum likelihood (Marquardt)SAMPLE: 3/01/1971 3/01/2012INCLUDED OBSERVATIONS: 165Convergence achieved after 142 iterations

COEFFICIENT STD. ERROR Z-STATISTIC PROB.

∆y 0.126917 0.494253 0.256787 0.7973

∆m 0.235759 0.151640 1.554727 0.1200

α -6.745685 0.075242 -89.65348 0.0000

FINAL STATE ROOT MSE Z-STATISTIC PROB.

i 0.001861 0.000213 8.755395 0.0000

LOG LIKELIHOOD 307.4165 Akaike info criterion -3.689897

PARAMETERS 3 Schwarz criterion -3.633425

DIFFUSE PRIORS 1 Hannan-Quinn criter. -3.666973

Source: Own Calculations


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Source: Own Calculations

1.3 Wage Cost as Part of the Cost-Push ModelIn order to investigate the nature of the link between inflation prices, unit labour cost, the output gap and an increase in the price of imported goods, the following long-run price equation was considered: π = γ(mgdp) + δ(ulc) +λ(ipi) Table 2: SSpace regression of Cost-push model: π = γ(mgdp) + δ(ulc) +λ∆(ipi)

METHOD: Maximum likelihood (Marquardt)SAMPLE: 3/01/1971 3/01/2012INCLUDED OBSERVATIONS: 165Convergence achieved after 180 iterations

COEFFICIENT STD. ERROR Z-STATISTIC PROB.

mgdp -0.251149 0.033844 -7.420666 0.0000

ipi 0.148554 0.057911 2.565205 0.0103

ά -6.864385 0.096460 -71.16321 0.0000

FINAL STATE ROOT MSE Z-STATISTIC PROB.

δ 0.021058 0.001471 14.31905 0.0000

LOG LIKELIHOOD 319.2103 Akaike info criterion -3.832852

PARAMETERS 3 Schwarz criterion -3.776381

DIFFUSE PRIORS 1 Hannan-Quinn criter. -3.809929

The table above shows that the model has been fitted on 165 observations and needed 180 iterations to achieve a converting solution. At the convergence, the maximum of the log likelihood is equivalent to 319.2103. The coefficient of unit labour cost has been chosen as a time variant because it is the model that came with the best output. We note the statistical significance of all parameters based on z-statistic over 1971Q1–2012Q1. These results carry strong practical insight into the mechanisms driving prices in the South African economy. First, we’ve noted that the coefficient of output gap is the highest (in absolute value) and significant over the period of study. These results also show that the output gap provides useful information and is relevant to determining inflation in South African, as is suggested by the theory of the modern Phillips curve. Second, we found that the import price impact is much higher than the unit labour cost over the same period.

CONCLUSIONIn order to assess the fundamental driver of inflation, this study has endeavoured to evaluate how expected inflation can be estimated in South Africa.

To account for structural changes in South Africa (political, monetary policy and fiscal), this study makes use of the State Space model in estimating inflation.

The main finding of this paper is that the long-run cause of



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inflation in South Africa was cost-push inflation during the period of study. The results from table 2 show that cost-push inflation is more relevant in the South African economy today because of the growing influence of trade unions, the general decline and instability in mining sector, and an undiversified export sector that has exposed the country to imported inflation and which have become very significant factors of inflation.

During the 1990s, more restrictive monetary policy measures were in place to protect the country’s balance of payments from adverse political and economic conditions (Schmulow and Greyling, 1996). To maintain price stability, restrictive monetary policy measures were mainly based on reducing domestic aggregate demand. Despite all the recent changes that have affected the economy, the evidence from this paper suggests that the current output gap, the import price level and the cost of production are related to estimate inflation. The insignificant inflationary impacts of demand-pull (see table 1) in this study may, to some extent, capture the impact of restrictive monetary policy measures.

The effective control of inflation rests mainly fiscal discipline, monetary discipline and exchange rate policy in the economy. Decision makers need to develop policies that seek to increase productivity, competition, innovation, thus reducing income inequality. They may find ways to directly control wages or put in place income policies which could set limits on the growth of wages. Government may try moral suasion to persuade firms and employees to exercise moderation in the wage negotiations in the public and mainly private sectors. Furthermore, the labour market needs reforms as the weakening of the trade unions’ power with the expansion of flexible working hours will assist the management of the cost-push inflation. Consequently, better education and suitable training could improve labour productivity and increase aggregate Supply. As a result this helps to control unit labour costs and puts less pressure on producers to raise their prices.

REFERENCESDE Kock Commission. (1985.) Final report of the Commission of Inquiry into the Monetary System and Monetary Policy in South Africa. Pretoria: Government Printer.

DE Wet, G.L. & Associates. (1987.) Inflation in South Africa. Durban: Butterworths.

Dollery, B.E. (1984.) Market structure and inflation in South Africa. South African Journal of Economics, 52, (4), 345-358.

Fourie, F.C.V.N. (1991.) Economic concentration and anti-inflationary demand policy in South Africa. South African Journal of Economics, 59, (1), 16-35.

Gallaway, L. E. (1958.) the Wage-Push Inflation Thesis, 1950-1957”. American Economic Review, 48, 967-71.

The effective control of inflation rests mainly fiscal discipline, monetary discipline and exchange rate policy in the economy.

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Mohr, P.J. (1986.) The De Kock Commission and inflation. South African Journal of Economics, 54, (1), 22-40.

Moore, B.J. & Smith, B.W. (1986.) Wages, money and inflation. South African Journal of Economics, 54, (1), 80-93.

Pretorius, C.J. & Small, M. M. (1994.) A Macro-Economic Examination of the Price Formation Process in the South Africa Economy. SARB quarterly Bulletin, 25-36.

Schaling, E. & Fedderke, J. W. (2005.) Modelling inflation in South Africa: A Multivariate Cointegration Analysis. South African Journal of Economics,73, (1), 79-92.

Schmulow, D. & Greyling, L. (1996.) Monetary Policy in the New South Africa: Economic and Political constraints. South African Journal of Economics, 64, (3), 175-192.

Strydom, P.D.F. (1976.) Inflation in South Africa I: Institutional aspects. South African Journal of Economics, 44, (2), 115-138.

Strydom, P.D.F. & Steenkamp, L. (1976.) Inflation in South Africa II: Aggregate demand and price expectations. South African Journal of Economics, 44, (4), 417-434.

Truu, M.L. (1975.) Inflation in the South African economy. South African Journal of Economics, 43, (4), 446-470.

Woglom, G. (2005.) Forecasting South African Inflation. South African Journal of Economics, 73, (2), 302-320.

NATIONAL DEVELOPMENT PLAN - THE CRITICAL ROLE OF COMMUNICATIONPERSPECTIVES 2012 4TH EDITION

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From a communications and change management perspective, just one critical element is missing from the National Development Plan 2030, which was handed over to President Jacob Zuma in August 2012, to succeed. “Our future – make it work” will not deliver without effective communication between everyone involved (which is all of us). The communications challenges behind implementing such a visionary and all-encompassing development plan cannot be underestimated. It will take a pioneering, imaginative and well-resourced approach implemented by a strong, passionate and dedicated team.

The good news is that all the gears needed for the myriad of projects within the National Development Plan (NDP 2030) have to

NATIONAL DEVELOPMENT PLAN -

THE CRITICAL ROLEEd Richardson (Siyathetha Communications)

OF COMMUNICATION


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be delivered on time and on budget are already slotting into place. For any project, those components include research, a defendable plan based on empirical evidence. The management will to make it happen, buy-in from all stakeholders, and establish seamless communication. NDP 2030 is a textbook study on how such a plan should be drawn up. Guided by some of the finest minds in the country, it is based on extensive research. According to Trevor Manuel, Chairperson of the National Planning Commission, the NDP is “the product of hundreds of interactions with South Africans, input from tens of thousands of people, extensive research and robust debate throughout the country”. Importantly, there is no attempt to gloss over the areas in which the country is failing. In the words of the forward written by Mr Manuel, “to establish a commission consisting largely of people from outside government was always going to be risky”. (National Planning Commission, 2012) Released in June 2011, the Commission’s Diagnostic Report identifies nine primary challenges:

1. Too few people work. 2. The quality of school education for black people is poor. 3. Infrastructure is poorly located, inadequate and under- maintained. 4. Spatial divides hobble inclusive development. 5. The economy is unsustainably resource intensive. 6. The public health system cannot meet demands or sustain quality. 7. Public services are uneven and often of poor quality. 8. Corruption levels are high. 9. South Africa remains a divided society.

These challenges feature in the introduction to the NDP 2030. After listing the successes since majority rule, it goes on to say: “Eighteen years into democracy, South Africa remains a highly unequal society where too many people live in poverty and too few work. The quality of school education for most black learners is poor. The apartheid spatial divide continues to dominate the landscape”.

It also recognises the challenges facing business: “Difficult choices will have to be made. To promote large-scale job creation, the functioning of the labour market will have to improve. The Commission makes proposals aimed at helping young people to get into the labour market, easing rules for small businesses, reducing tension and conflict, and clarifying dismissal and misconduct procedures”. This even-handed approach has helped win broad support for the plan, with opposition parties not being able to find much to criticise, and business largely welcoming it. In its response, Business Leadership South Africa (BLSA) says: “We see the NDP as a national rallying call that will unite the whole country behind it”. BLSA is an independent association representing South African big business leadership and major multinational investors. It is a forum for South Africa’s business leaders to exchange ideas on matters of current interest with the large companies of South Africa and to facilitate an effective business dialogue with government.


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The organisation describes NDP 2030 as “a plan whose key tenets will be known by, discussed by and lived by the whole population.” It will be a plan that becomes a national implementation strategy for the principles articulated in the constitution. To achieve this, the NDP must become part of the daily conversations of government and business leaders, as well as civil society going forward. As part of this process, BLSA welcomes the call to develop a constructive partnership model with government; and this is a key theme of our submission. Business has the project management, process and administration skills to help government address capacity shortfalls as quickly and efficiently as possible”. (Business Leadership South Africa, 2012)

Civil society has swelled the ranks of those supporting NDP 2030. Writing for the Southern African Catholic Bishops’ Conference (SACBC), director Peter-John Person explains: “Scrutinized through the lens of Catholic Social Teaching, the plan is a most laudable and sincere attempt to promote the common good of all our people, and deserves the fullest co-operation of civil society, including the faith community” (Pearson, 2012). Other church organisations and representatives of civil society have also commented favourably on the plan.

This is critical because the first hurdle to overcome from a communication perspective, whenever introducing new ideas or plans, is buy-in. Without this, any plan is still-born, as those responsible for implementing it will ensure it does not succeed through a combination of passive resistance, disobedience and plain sabotage. Broadly speaking, NDP 2030 has the necessary buy-in across the spectrum. Achieving this in a highly politicised environment and leading up to the ANC’s 2012 53rd National Conference in Mangaung was no easy feat. It is a tribute to Trevor Manuel and the team he assembled, and their independent approaches. As a result, the plan resonates with both supporters and opponents of the African National Congress.

Manuel gives much of the credit to President Zuma. “The Commission thanks President Zuma for his courage and ongoing support in guiding its work,” he writes in his introduction. The president has done much more than that. He made a strong case for the Mangaung conference to adopt the plan, devoting a large portion of his opening address at the Mangaung conference to lobbying for the plan: “the NPC this year produced the country’s ground-breaking National Development Plan - a major achievement for the fourth administration. The plan is comprehensive and covers a number of sectors. These include tackling the problems of poverty, inequality and unemployment, infrastructure, education and skills development, small business development, education and the national health insurance.

“We now have a plan that has been welcomed by all sectors of society and not just government and the ruling party alone. When we took the decision on national developmental planning, we were very conscious of the fact that, firstly, the transition to a national democratic society would face complex challenges which cannot

Importantly, there is no attempt to gloss over the areas in which the country is failing.’

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be addressed in an ad-hoc fashion or solely left to the forces of the market. We knew that the existence of a national planning mechanism would ensure that there is a coherent programme and strategic discipline within the state, and will hopefully eliminate silos. Also, our economy is integrated in the global economy which often exposes us to turbulence; as well as uncertainties such as the present global economic crisis.

“In such conditions, it is easy to lose sight of our vision and strategic priorities, in favour of short-term solutions. Having a national strategic vision as a country helps us stay on track. Thirdly, we must accept that the process of overcoming unemployment, poverty and inequality, and of building a national democratic society will be long and hard” (Zuma, 2012).

That’s the next critical box ticked – support from the head of the organisation. Coming from the president of the country, there can be no higher endorsement. Re-inventing the South African economy as envisioned by the NDP 2030 requires nothing less than dramatic culture-change across the whole economic and social spectrum. Such change does not happen without leadership from the top. Laurie Hillis, then Programme Director for Customised Programmes at the Banff Centre in Alberta, Canada, wrote: “Leaders need to create the conditions for the transformation of a culture. Leaders and managers do not change the culture; they merely invite their people to change the culture through day-to-day behaviours. Leaders ensure the systems, and processes support the new behaviours. Modelling new behaviours must start at the top” (Laurie Hillis, 2004).

At the Mangaung Conference, the NDP 2030 was endorsed without amendments. Soon after, newly-elected ANC deputy president Cyril Ramaphosa placed great emphasis on the NDP as government’s blueprint to boost: inter alia, the economy, job creation and investment. Writing in the Sunday Times newspaper, he said: “Fortunately, most sectors of society – including the cabinet – have accepted and endorsed the plan”. The next step would be to make hard policy choices and implement them. “The plan is to get South Africa working, and the NDP contains a set of interventions that will lead us to growth and development: “We need both” (Ramaphosa, 2012).

The only missing cog to realise the vision to Make South Africa Work is, therefore, communication. Everything else is in place – support from top leadership, the necessary research, the vision, and buy-in from stakeholders. The NDP recognises in its preamble the need for dialogue and debate in order to unite the country behind the vision: “South Africa belongs to its entire people, and the future of our country is our collective future. Making it work is our collective responsibility”. President Zuma, in his speech, picked up on the same theme: “But the public sector acting alone cannot achieve the goal of a sustained acceleration in growth. Implementing this programme will require that we unite all South Africans around our movement’s vision. We must create a momentum for change that inspires all our people to put their shoulder to the wheel of common effort”.


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Ramaphosa in his Sunday Times article encouraged the public to participate in dialogue and buy into the NDP. “Social partners need to understand that what is at stake is the future of our country, and an entire generation of youths that will be lost if we concern ourselves with narrow sectorial interests. We will work with Business, labour, the community sector and other sectors to make these plans succeed. With single-minded determination, let us commit ourselves to transforming our economy and society so that all our people can benefit from the fruits of a growing economy”.

For that to happen, the process needs to be fuelled and oiled by a new approach to communication. Research into project-failure time and again highlights the critical role played by communication in the success – or otherwise – of projects. In 1998, the French computer manufacturer and systems integrator, BULL, requested an independent research company, Spikes Cavell, to conduct a survey in the UK to identify the major causes of IT project failure in the finance sector (IT Cortex). The survey identified that the major causes of project failure during the lifecycle of the project are a breakdown in communications (57%), a lack of planning (39%) and poor quality control (35%).

In another study, poor communication is the reason why most IT projects fail, according to a Web poll released by the Computing Technology Industry Association (CompTIA), an Oakbrook Terrace, Ill.-based trade association. Nearly 28% of the more than 1 000 respondents to the survey said poor communication is the number one cause of project failure, according to CompTIA. Insufficient resource planning was found to be the second most-cited cause, while unrealistic deadlines were the third (Computerworld, 2007).

Kareem Shaker, commenting on the Project Management Benchmark Report on project failure published by Arras People says the common thread is a failure of communication. This includes the following:

• Thepeople inchargeof theprojectdonotcommunicate its scope or sell it to the people most likely to be affected by it – and then bury their heads in the sand when it starts to go wrong. • Noonelistenstothestakeholders–oriftheydo,no-onedoes anything about it. (Did anyone ask the stakeholders in the first place?) – in other words, no-one monitors or manages stakeholder expectations. • Implementationteamsmakeassumptionsabouttheenduser climate which is not borne out by the facts. • The implementation teams frustrate their customers by duplicating requests for information and co-operation. • There is toomuch indigestibleproject information, andnot enough targeted, focused, clear communication. • Relationship failures, turfwarsandsiloculture frustrate the project, or divert it into a cul-de-sac (Gaunt, 2010).

The importance of communication is also emphasised by the International Finance Corporation: “Companies that have grasped


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the importance of actively developing and sustaining relationships with affected communities and other stakeholders throughout the life of their project, and not simply during the initial feasibility and assessment phase, are reaping the benefits of improved risk management and better outcomes on the ground. As approaches to consultation and disclosure change from a short term means of meeting regulatory and lender requirements, to a longer-term, more strategic channel for relationship-building, risk mitigation, and new business identification, new approaches and forms of engagement are evolving” (International Finance Corporation, 2007).

Leading communications practitioners are starting to apply the same disciplines that are used by the engineers who planned and built the Coega Industrial Development Zone, and who are now actively involved in building the provincial infrastructure. Engineers and project managers rely on the Professional Management Body of Knowledge (PMBOK); and similar systems to plan, implement and monitor a project from start to finish.

The PMBOK Guide is process-based, meaning that it describes work as being accomplished by processes. This approach is consistent with other management standards such as ISO 9000 and the Software Engineering Institute’s CMMI. Processes overlap and interact throughout a project or its various phases. Processes are described in terms of:

• Inputs(documents,plans,designs,etc.)• ToolsandTechniques(mechanismsappliedtoinputs)• Outputs(documents,products,etc.)

The Guide recognizes 42 processes that fall into five basic process groups and nine knowledge areas that are typical of almost all projects.

The five process groups are: 1. Initiating 2. Planning 3. Executing 4. Monitoring and Controlling 5. Closing

The nine knowledge areas are: 1. Project Integration Management 2. Project Scope Management 3. Project Time Management 4. Project Cost Management 5. Project Quality Management 6. Project Human Resource Management 7. Project Communications Management 8. Project Risk Management 9. Project Procurement Management (Project Management Institute, 2012)

Each of these processes and knowledge areas is only as successful and useful as the information is accessible to all those who need it.


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Engineers, as a rule, are not natural communicators (one engineer described communication to an associate of this writer as the “lipstick on the project” i.e. nice to have, but not essential). Project managers are also not taught how to communicate effectively. They often do not understand the need to “over communicate” in order to get a message across.

Let’s take a simple practical example of a building site. There is a stop sign, which drivers are ignoring. Non-communicators will build a boom, institute a system of penalties, and fret about the recklessness of everyone on site. A communicator will analyse whether the sign is clearly visible at all times, and ask whether drivers on site understand why they need to stop. Another example is the silos which Shaker refers to. Water engineers will assume that everyone knows that a pipe has to run from the reservoir along specific gradients to reach the outlet. The operator digging ditches for the electricity cables has not been informed as he is working in a silo of his own, and severs the pipeline with the back actor. That is due to a failure of communication, and nothing else.

As challenging as it is for many professionals in the built environment to accept communicators as equals, we communicators have to up our own game. For too long communication has been regarded as an art rather than a science. Being an art is useful, because your output cannot be empirically measured. In the process we have done our profession a disservice. Communication drivers are, in fact, well understood, and the outcomes of communication can be measured. Do more drivers stop at the crossing now that the sign has been repositioned to eliminate the glare?

Or, do business and government understand their respective roles in the rollout of the NDP 2030? President Zuma set the goals in his Mangaung speech: “The destination we are heading towards is a mixed economy, where the state, private capital, cooperative and other forms of social ownership complement each other in an integrated way to eliminate poverty and foster shared economic growth”. To find out what the people responsible for implementation understand the statement to mean, one sits down with the main role-players and asks them. Then you put them in the same room so that they can talk about it. You record, transcribe and package what is said and agreed upon, and you publish it as widely as possible. Then you send weekly reminders to all the stakeholders, you record and celebrate the wins, and you document every step of the journey.

But, you have to be tough. Corporates which enjoy the best public profile have communications practitioners as part of the top management team. Firstly, they need to be privy to the plans and strategies of the company. Secondly, they need the rank to make things happen. In many organisations, management power comes from control of information. Managers ration the information they share with their staff, associates and fellow managers in other departments because they believe that in this way they maintain their power base

Eighteen years into democracy, South Africa remains a highly unequal society where too many people live in poverty and too few work. The quality of school education for most black learners is poor. The apartheid spatial divide continues to dominate the landscape.

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and cannot be replaced. Communications executives need the skills, personality and position to change that culture.

It must be said that the culture is most prevalent in large organisations – such as government departments, parastatals, municipalities and, of course, large corporates: in other words, all the organisations that are going to have to deliver on the vision of NDP 2030. Therefore, the challenge can, and must not be under-estimated. President Zuma, his cabinet and the Planning Commission are going to need one of the strongest and most innovative communications teams assembled anywhere. They will also need to be properly resourced, because their brief is, ultimately, to steer the whole country forward under a common vision. As the NDP 2030 states: uniting South Africa is both an essential input into the process of reducing poverty and inequality; as well as a direct outcome of successful poverty reduction. Unity only comes when we communicate effectively at all levels.

This is, unfortunately, not (as yet) recognised in the NDP. Communication is either not mentioned at all, or is low down on the list of priorities for the recommended actions in all the sectors it deals with. There is still time to correct this potential critical point of failure.

ACT Government . (n.d.). Social Compact. Retrieved (December 14, 2012.) from Timetotalk : http://timetotalk.act.gov.au/social-compact/

Business Leadership South Africa. (2012.) Building Competitiveness: Business Leadership South Africa’s Response to the National Development Plan. Johannesburg: Business Leadership South Africa. Computerworld. (March 9, 2007.) Computerworld. Retrieved January 1, 2013, from Survey: Poor communication causes most IT project failures: http://www.computerworld.com/s/article/9012758/Survey_Poor_communication_causes_most_IT_project_failures

Gaunt, R. (November, 2010.) Guest Blogger – Project Failure is Also Due to Poor Communication. Retrieved January 1, 2013, from How to manage a camel: http://www.arraspeople.co.uk/camel-blog/projectmanagement/guest-blogger-project-failure-is-also-due-to-poor-communication/

Gaunt, R. (November 5, 2010) Guest Blogger - Project Failure is Also Due to Poor Communication . Retrieved December 28, 2012, from How to Manage a Camel - Project Management and Recruitment from Arras People: http://www.arraspeople.co.uk/camel-blog/projectmanagement/guest-blogger-project-failure-is-also-due-to-poor-communication/

International Finance Corporation. (2007.) Stakeholder Engagement:

REFERENCES

The NDP must become part of the daily conversations of government and business leaders, as well as civil society going forward.

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A Good Practice Handbook for Companies Doing Business in Emerg-ing Markets. Washington: International Finance Corporation .

IT Cortex . (n.d.). it-cortex.com. Retrieved (January 1, 2013.) from Failure Causes Statistics: http://www.it-cortex.com/Stat_Failure_Cause.htm

Laurie Hillis, M. (May 4, 2004.) Culture Follows the Leader. Retrieved January 2, 2013, from Banff Centre : http://www.banffcentre.ca/leadership/library/pdf/culture_28-29.pdf

National Planning Commission. (2012.) National Development Plan 2030 - Our Future - make It Work . Tshwane : South African Government .

Pearson, P.-J. (August 17, 2012) National Development Plan response. . Retrieved January 2, 2012, from Southern African Catholic Bishops’ Conference: http://www.sacbc.org.za/the-national-development-plan/

Project Management Institute. (December 28, 2012) A Guide to the Project Management Body of Knowledge. Retrieved January 2, 2013, from Wikipedia: http://en.wikipedia.org/wiki/A_Guide_to_the_Project_Management_Body_of_Knowledge

Ramaphosa, C. (December 23, 2012.) We must unite to get South Africa working. Retrieved December 29, 2012, from Timeslive: http://www.timeslive.co.za/sundaytimes/2012/12/23/we-must-unite-to-get-south-africa-working

Zuma, P. J. (2012.) Political Report by President Jacob Zuma to the 53rd National Conference of the ANC. 53rd National Conference of the ANC. Bloemfontein: African National Congress.


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The Department of Rural Development and Land Reform (DRDLR) has as its core mandate the development of “sustainable and vibrant rural communities” in the Republic of South Africa. In its efforts towards implementing this mandate the Department had embarked on developing a fresh approach to rural development. In order to effect the latter, a Comprehensive Rural Development Plan (CRDP) was developed as a means of enabling rural people to take control of their destiny with support from government, thereby dealing effectively with rural poverty through the optimal use and management of natural resources. This approach supposedly achieved this aim through a coordinated and integrated broad-based agrarian transformation as well as strategic investment

THE APPLICATION OF FORESIGHT IN

FOR SOUTH AFRICAN GOVERNMENT DEPARTMENTS

CORPORATE PLANNINGDavid Lefutso (Coega Development Corporation)Thembinkosi Semwayo (Ontolligent Software Services)Mphathi Nyewe (Foresight Strategies)

INTRODUCTION

THE APPLICATION OF FORESIGHT IN CORPORATE PLANNING FOR SOUTH AFRICAN GOVERNMENT DEPARTMENTS


51

in economic and social infrastructure that would benefit all rural communities in South Africa.

The Department of Rural Development and Land Reform (“DRDLR”) requested the assistance of the authors to facilitate its long-range planning for the purpose of informing its strategy. The aim of the exercise was agreed on as follows:

a) Developing a long-term plan for the fulfillment of the DRDLR’s mandate;b) Seeking the following: alignment between all the elements of the mandate, vision, mission, strategic objectives, expected outcomes and desired impacts moving towards the creation of “vibrant, equitable, sustainable rural communities”;c) Agreeing on a preferred and optimal future for rural communities andd) Reviewing the strategic direction of the DRDLR.

On the basis of the review, the DRDLR would update its five year Strategic Plan as well as its Annual Performance Plan. The underlying objective was to promote an efficient and effective delivery of services to South Africans in order to maximise socio-economic development as part of complying with both policy and legislative requirements, thereby steering the DRDLR along a path that is sustainable in the medium to long-run. Long range planning focuses on the long-term future. It serves to liberate thinking that is constrained by today’s problems and challenges, and enables public officials, executives, managers, and civil society to think innovatively and creatively about a constraint-free idealised future.

Over the last ten years, South Africa has encouraged foresight as a the preferred long-term planning methodology transcending the Medium-Term Strategic Framework and the Medium-Term Expenditure Framework, which are the current guiding parameters of national government. The National Planning Commission has recently developed a long term national vision which should guide the various sectors of society towards a prosperous future.

Foresight is a family of processes and tools intended to capture the dynamics of change by placing today’s reality within the context of tomorrow’s possibilities. The tools of foresight provide the means to visualise and systematically think about and realise desired future visions. Foresight adds a critical dimension, usually ignored in developing and implementing long range strategy: that of a deliberate, visionary co-creation of desirable futures.

Foresight furthermore focuses on future possibilities, gaining insight from the past and present, and subsequently directing its efforts towards systematically developing desired futures. This approach emphasises the need to start with a clear vision

THE FORESIGHT DRIVEN STRATEGIC APPROACH


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of a desirable future: then working backwards to design the requirements for realising that vision. The technique does not start with a detailed analysis of today’s problems in order to find solutions; but rather with the possibilities of the future in order to find the means to achieve that future. The approach provides an environment which “frees” the mind from focusing on what is, towards what can be. This enables us to freely explore desirable futures without being encumbered by today’s issues and problems. It is only through such an approach that a “quantum leap” is possible in development futures.

The Foresighting methodology is grounded in the Soft Systems Methodologies which put emphasis on the use of imagination, search for knowledge, and action learning. It applies brain storming techniques, and structured analysis to stimulate creativity and systematically think about the future. The Foresighting methodology can be summarised diagrammatically as follows:

Figure 1: The Foresighting methodology

Futures wheelsThe futures wheel is a brain storming, non-judgemental Foresighting technique used to identify important issues around a desirable “imaginary” future by a group of workshop delegates. Delegates, typically in groups of between 5 and 8 people, “dump” their thoughts around the central vision on a flip chart spread out on a table.

Every issue raised is documented. No issue is considered right or wrong. At the end of the process related issues are grouped into emerging themes. Delegates then prioritise what they consider the most important theme/s for further analysis.

The prioritisation is achieved through a democratic voting process. Each delegate has 3 votes, and each votes for what he or she

Source: Hietanen et al, 2011

PERSPECTIVES 2012 4TH EDITION THE APPLICATION OF FORESIGHT IN CORPORATE PLANNING FOR SOUTH AFRICAN GOVERNMENT DEPARTMENTS

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considers to be the 3 most important issues / themes, in order of priority. However, it should be noted that although a specific theme is prioritised this does not necessarily exclude other important issues because in most cases the issues are connected.

Futures tablesFutures tables are used to tease out the key factors needed to design desirable futures. We provide below a typical Futures table with definitions of its various elements:

Table 1: Futures table

GROUP NAME A unique catchy name in line with the emerging theme that helps participants to remember the theme and process.

THEME This is the emerging image of the future, branded to give it meaning and identity.

ACTORSThese are identifiable role players in society; they can come from anywhere with or without an official mandate, operating within the sector, industry or market. They act to promote self-interest or promote a specific public interest.

CUSTOMERS & BENEFICIARIES

Customers are those who pay for services/products/benefits. Beneficiaries are those who enjoy the services and benefits whether or not they are required to pay for them.

BREAKTHROUGH INNOVATIONS

Breakthrough innovations are deliberately induced changes in thinking, attitudes, perceptions or acquired knowledge as well as the expertise of actors, customers, suppliers, policy makers, experts and other societal agencies that might suggest solutions in a manner previously thought to be impossible or impractical before.

ENABLERSThese are deliberately introduced products/services, knowledge, expertise and environmental changes that make it possible to realise the benefits of the breakthrough innovations. Enablers can and do lead to breakthrough innovations in some instances.

POSSIBLE OBSTACLES

These are natural, material, immaterial or systemic blockages to progress/advancement, which prevent or slow down the achievement and realisation of set goals or desired changes in any environment or system.

VALUESValues are guides to the correctness of the actions and behaviours of role players within the system (organistion). The correctness of the actions and behaviours is based on the prevailing belief systems of the role players.

KEY DRIVERSThese are factors within and outside of the organisations that influence changes in thinking and the behaviour of individuals, organisations, society, governments and interest groups - whether or not they are conscious of the latter.

Proto-scenariosProto scenarios are short stories describing a possible path to the prioritised future theme, taking into account the factors identified in the Futures Wheels and Futures Tables. They typically take the future target date as the starting point and provide a reflection of “How we got here”, i.e.: the ideal future state. The proto-stories typically revolve around:

• Acharacter;• Awelldefinedplot;• Asliceoflifefocusingonanimportantevent;and

Source: Adapted from Finland Futures Research Centre’s ACTVOD table by M. Nyewe and T.Semwayo 2009.


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• Apayoffline:apunchlinethatsummarisestheproto-story in a catchy phrase that leaves a lasting impression and is easy to remember.

The final step involves the drafting of a high level implementation outline of actions, using the Backcasting technique to determine the critical initiatives that should be put in place. (see Figure 2):

Figure 2: The Backcasting process

Source: Cottong, 2011

Backasting is a method of mapping out a path to a future vision starting from a projected imagined future vision as if that vision has already been realised. Backcasting provides the link between a desired future with the present. Its starting point is a future date when the desired future has been realised and asks the question, “What should be in place for this part of the future to be realised?”. This is done sequentially in phased timelines looking backwards to the present time as per Figure 3 above.

Backcasting is a departure from orthodox strategic planning which starts at the present state towards a future vision – essentially an uphill task encumbered by the weight of history and current problems. The Backcasting exercise provides the sequencing of the identified actions.

The long range strategy development process took place over a 2½ day period on the 1-3 December 2011. The first three days focused on the Foresighting process, covering the development of:

THE DRDLR LONG-RANGE STRATEGY DEVELOPMENT WORK PROCESS AND OUTCOMES


55

a) Determining the key question;b) Envisioning ideal futures by using the Futures wheels brain storming technique;c) Unpacking the emerging futures through an understanding of the character of the process that would bring forth those defined futures, i.e.: • Theactorsandroleplayers; • Thespecificservicesandproductstobedevelopedand the likely beneficiaries of those goods and services; • Thelikelyobstaclesthataremightbeencountered; • Thebreakthroughinnovationsthatwouldberequired; • The enabling environment that would facilitate such breakthrough innovations; • Thecurrentdriversinthepresentandsuchresourcesas are required.

d) A Backcasting exercise to determine the possible path to the future starting from an ideal future to what strategic initiatives should be put in place in order to arrive at a preferred future.

A final 1-day workshop, which was held on 14 December 2011 wrapped-up the elements of the Backcasting exercise, which were not completed during the first 2½ day workshop due to time pressures and the consideration of strategic implications of the newly identified strategic initiatives. The latter had to inform the long, medium, and short term trajectory of both rural development and land reform programmes.

Determining the key questionA facilitated plenary discussion yielded the following key question, “What will vibrant, equitable, rural communities look like in the year 2030?”

Envisioning ideal futures using the Futures wheel techniqueHaving determined the key question, the workshop participants were then divided into 5 groups to use the Futures table technique, so as to come up with their collective vision of “Vibrant, equitable rural communities” in the year 2030. Participants were asked to imagine themselves in the year 2030 and describe what they would see as vibrant, equitable rural communities that have already been realised through their participation and that of other stakeholders.

Through a facilitated process workshop participants “dumped” their imaginary views of imaginary 2030 futures as per Figure 3 (this is an output of the exercise by Group 1. The outputs of the other groups are not provided in this article). Every thought that was put on paper was considered relevant, and its merit was not discussed apart from a clarification of its meaning. This was followed by a prioritisation process of those images of the future being considered by individual participants as the most important. Each participant was provided with 3 “votes” in the form of coloured stickers which they placed on those images of the future they considered the most important. Through this process, themes emerged of desired futures. Thus, the outcome


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of this process can be thought of as facilitated consensus. This particular group’s (Group 1) theme was re-defined as “The Green village”, whose distinguishing features were described as: “A green living community driven by an environmental preservation oriented value system.

Figure 3: Sample Futures wheel developed by one group (Group 1)

Source: Own elaboration

Group 1’s theme was refined as “The green village”, whose distinguishing features were described as: “A green living community driven by an environmental preservation-oriented value system. Use of alternative renewable energy sources enabled a low-carbon economy built on a robust overall city level infrastructure. Internet access is available at every home and at multi-purpose community centres. Women’s enterprises have emerged from dedicated enterprise development support programmes.”


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Unpacking the emerging futures using Futures tablesFutures tables provided a structured and systematic way of thinking for the participants and enabled them to develop the desired futures. The five group participants were asked to populate the Futures tables as a means of describing the various facets of a desired emerging future. Table 2 is a sample table produced by Group 1 participants (the outputs of the other groups are not provided in this article).

Table 2: Futures table (Group 1)

The above chart outlines the identified actors and role players with which the DRDLR needs to collaborate in order to bring about the Futuristic Village - a vibrant, equitable, rural community – in the year 2030. These include national government departments like the Departments of Energy and Social Development; and parastatals like the Industrial Development Corporation, the Agricultural Research Council, and private sector partners. Workshop participants further identified possible breakthrough scenarios such as renewable energy sources, solar and wind, possible enablers like education and strategic partnerships with various sectors of the economy. Possible obstacles were identified as: lack of political will, social conflict, and availability of systems, processes, and competencies. The purpose of identifying these problems is not simply to list them but to note, and creatively find, innovative ways of by-passing these obstacles should they manifest in the future – as the DRDLR and its partners developed vibrant, equitable rural communities.

GROUP NAME Futuristic Village

THEME The Green Village

ACTORS / ROLE PLAYERS

Depts. Of: Arts & Culture, Communications, Health, Labour, Sports & Recreation, Trade & Industry, Public Works, Environment, Agriculture & Forestry, Tourism, Higher Education, Energy, Justice, Cooperative Governance & Traditional Affairs, Social development.

Industrial Development Corporation, Agricultural Research Council, Sector Education Training Authorities, Further Education & Training, Centre for Scientific & Industrial Research.

Investors, Movie Houses (e.g. Ster Kinekor), Cooperative banks, Private sector partners .


Novel technological system of irrigation; Renewable energy: solar, wind; Signing of COP17; Dry sanitation; Land registration and Water harvesting.

ENABLERS

Education

Partnerships: Government / International solidarity / private sector

Motivation, ownership, commitment

Access to: markets, technology, finance

Funding commitment

Aforestation

POSSIBLE OBSTACLES

Lack of political will; Social conflict; Availability of resources; Systems, processes, competencies; Infrastructure; Water; Buy-in; Global warming and Cultural resistance.

VALUES Equity; Social justice; Good governance; Transparency; Honesty; Integrity; Trust; Patriotism and Participation.

KEY DRIVERS Motivated communities; Lack of economic activity; Poverty eradication; Natural resource management.



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Proto-scenariosThe five groups developed proto-scenarios as a means to illustrating vivid images of how, starting in 2030, they actualised the 2030 reality of developing vibrant, equitable rural communities, as depicted in the Futures wheels and tables. Proto-scenarios provide a platform to paint a cohesive, internally consistent picture of how the ideal future was created in retrospect.

A proto-scenario by Group 1 is depicted below (the outputs of the other groups are not provided in this article):

A GREEN FEMALE ENTERPRISE DRIVEN FUTUREA green living community driven by environmental preservation-oriented value system. Use of alternative renewable energy sources enabled a low-carbon economy built on a robust overall city-level infrastructure. Internet access is available at every home and at multiple community centres. Female enterprises have emerged from dedicated enterprise development support-programmes.

The vibrant, equitable, sustainable rural communities in 2030 consist of:• Accesstoqualityeducation - Addressing lack of skills - Developing indigenous languages• Well-developedICTinfrastructure - Access to internet at household level - Centre of information• Womenareliterateandabletoreapfinancialrewardsfortheir businesses - Women are financially independent - Support systems for women • All6millionHouseholdshaveaccesstowaterandenergy ‘Rural cities’ • Accesstohealth - AIDS/TB free generation • GreenCommunities - Promote the use of alternative energy sources to reduce carbon emissions• Welldevelopedandimprovedinfrastructure - Houses - Clinics - Water - Sanitation - Energy - Roads - Sport activities • Empoweredself-helpdevelopment• Sustainablelivelihoods• Wellinformedcommunities• Asenseofidentity• ASenseofsafetyamongstthecommunity

Consolidated valuated themesThe various inputs and outputs of the above five groups’ processes were consolidated and evaluated for commonalities and divergences. These are shown in Table 3:

Table 3: Consolidated evaluated themes


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THEMES & GROUPS GROUP 1 GROUP 2 GROUP 3 GROUP 4 GROUP 5

FUTURISTIC VILLAGE

INVESTMENT INC 2030

INTEGRATED RURAL ENTERPRISE

COME TO OUR CITY OUTSIDE THE CITY

SMART VILLAGE IN THE KAROO AND NAMAQUALAND

KEY DEFINING FEATURES

A green living community driven by environmental preservation oriented value system. Use of alternative renewable energy sources enabled a low-carbon economy built on a robust overall city level infrastructure. Internet access is at every home and at multiple community centres. Women enterprises have emerged from dedicated enterprise development support programmes.

Focus on Youth development (Foresight) and intensive investment in quality education, ICT and broadband infrastructure, create an information driven society and knowledge based economy. Broad-based ownership of land and industrial equity participation is a condition and a critical success factor in this economy.

Integrated technology driven agriculture.Information technology knowhow, IT connectivity and renewable energy enable viable farm enterprises that draw scarce and critical skills from the city centres in South Africa.

Entrepreneurial training and Technology led empowerment for previously disenfranchised youth. Leads to development of franchise chain.

Scientific knowledge and research based Smart Village.A community built on opportunities created by its unique location, geographic positioning and climate conditions. Astronomy and biotechnology IP licenses generate substantial revenues for the local economy.


FUTURISTIC VILLAGE

INVESTMENT INC 2030





Technology- Renewable energy (solar, wind)- Water harvesting - Dry sanitation

Signing off Cop17

Land registration

Rain making machine

Massification of National Rural Youth Service Corps (NARYSEC)

Textile manufacturing

Agro processing

Community libraries

Mass production

Attraction of skills through allocation of a rural allowance/incentives

Web-based teaching

Attraction of international sport stars (funds & coaching & life skills)

Square Kilometre Array- (World’s Largest Radio Telescope)

ENABLERS

Education

Partnerships – gvt / int solidarity / pvt sector

Motivation, ownership, commitment

Access, technology, access to marketsFunding commitment

Aforestation

Agric incentives & business incentives

Rebates

Rural infrastructure

Funding for NAYSREC

Cheaper bandwidth

Policy for YCS

Economic growth

Scientific research invention

Research funding

ICT

InfrastructureTechnology

Improved quality of education

Finance

Legislation

Sport Facilities & coaching

Appropriate infrastructure incl ICT

Green technologies

Tax breaks/Incentives for investors/developers

Empowered vulnerable groups

Building tertiary institutions

(Availability of adequate skills )

Markets, small business, enterprises

Government and private institutions funding (venture funding)

Skills development and transfer


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For each possible future, as described under each theme, the key features per sub-heading: Key defining features, Actors, Breakthrough innovations and so forth are shown. The common features for each of the sub-headings identified across the different groups are shown by the same color code. In the case of the following Key defining features: development enabled by information, communication technology and intensive use of knowledge-enabled development are common features in groups 1, 2, and various technologies which have driven or enabled development in groups 3, 4, and 5. These common features provide pointers to the most likely elements we are most likely to encounter in developing the different futures.

Broad walk from the ideal future to the present: BackcastingBackcasting is a well-established scenario planning methodology which, when used in combination with other foresight techniques, serves to enable the scenario planning team to be more objective and reflective in planning the action-steps towards the realization of the preferred scenario.

The workshop participants team developed the following backcast for the development of “vibrant, equitable rural communities” by 2030 (see Figure 4).


FUTURISTIC VILLAGE

INVESTMENT INC 2030




POSSIBLE OBSTACLES

Lack of political will

Social conflict

Cultural resistance

Buy in (transactional partners)

Systems + processes + competencies

Availability of resources- Water

Infrastructure

Global warming

Change of govt

Community conflict

Corruption

Red tape Absence of water

Corruption

Sophisticated organized Crime

Funding

Lack of proper inter-government relations

Lack of legislation

Corruption & nepotism

Lack of specialist technical skills

Access to water; water purification

Access to energy

Access to transport

People: skills and numbers; social skills

Climate change Attracting public and private investment



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Figure 4: Backcasting Results


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By starting with the end points, i.e. desirable images of the future in 2030, through a facilitated process workshop, participants mapped out what needed to be in place in the preceding period to determine a present future position. Each arrow points to the pre-requisites for any given future position. For example Agrarian transformation in the period 2025 - 2030 should be preceded by a large-scale equity transfer of the ownership of livestock, red meat production capabilities and the cultivation of specialised crops in the period 2020 - 2025. Out of the Backcasting process, interconnected themes emerged, namely:

• Landreformischaracterisedbytheneedforlandregistration and the removal of constraints related to contested and non- contested land transfers;• Agrarianreformischaracterisedbytheneedforagri-business ownership equity and training in specialised technologies; • The promotion and use of renewable energies for low-cost electricity; • Access to ubiquitous broadband internet resources for educational and information purposes;• Access to physical and electronic health and educational resources;• Access to sound physical infrastructure including roads, electricity, bulk water, and sanitation; • Aneedforentrepreneurship;• Foodsecuritythroughtheuseofadvancedagro-technologies; and• Thepursuitofacrimefreesociety.

The various links between the different elements of each theme illustrate the nature of their inter-dependencies, indicating how they depend on each other for the realisation of these desired futures.

Strategic implicationsBased on the outcome of the Backcasting exercise the following questions with regard to their strategic implications were posed and discussed:

Strategic Implication 1: Reorganization of the Department of Rural Development and Land Reform

STRATEGIC QUESTION POSSIBLE SOLUTIONS

Is our organisation / Department equipped to service and flourish in any of the multiple and equally plausible futures environments we may be facing? - (organizational capacity review)?

After extensive discussions the following was established:a) The DRDLR has the numbers but not the requisite capacity to carry out the required strategic initiatives; b) Cadastral Surveys and Deeds Registration ought to be separated from the Department, and a new proposed government component of the Department;c) Rural Development should be separated from Land Reform and be constituted as separate stand-alone National Departments; andd) Land Reform should be constituted as a separate Department covering, inter alia, Restitution, Tenure Reform, Land Redistribution & Land Administration.

Strategic Implication 3: Revision of the current Strategic Plan


63


Is the DRDLR strategically positioned, considering the sort of organization we are and the environment we may encounter? – (business portfolio review)?

The following was established:a) The DRDLR is well positioned to drive rural development, it has been given the platform to do so [the Minister chairs the Presidential Infrastructure Commission, and the Deputy President is a Secretariat member];b) The DRDLR has the potential, but has not assumed the full role of driving rural development. It has until now been more responsive rather than taking the lead. There is a need to influence the agenda in the transactional environment, i.e., in interactions with strategic partners, such as other National Departments, Parastatals, and other spheres of government;c) The DRDLR is not well resourced to carry out its stakeholder management and facilitation role;d) Understanding agrarian transformation will indicate the Department’s positioning and strength / ability to deliver;e) There is a need to engage transaction partners to develop a common vision of rural community futures; f) The DRDLR has no authority yet to requisition other departments. There is a need to seek and have such authority.


What changes are required regarding our existing strategic plan for the next five years?

It was agreed that:a) The purpose for rural development remains the same and its vision remains valid;b) The DRDLR’s vision needs to be reviewed with respect to: • Financialresourceallocation; • TheOrganogramneedstotoberevisited.Thereshould be a split between Land Reform & Agrarian Reform, etc.; • Thenatureofthetransactionalenvironmentneedstobe assessed, and opportunities maximized; • Ourpeopleandresourcesmustbegearedtowardsthe realization of the organization’s strategic objectives.

Strategic Implication 2: Revision of the Operating Model

Strategic Implication 4: Fast-tracking of current Projects and Programmes


What initiatives is the DRDLR able to embrace immediately by using existing resources to achieve the revised short-term and medium-term goals and objectives? The answer to this must be unpacked from the programmatic priorities that the Backcasting exercise has revealed.

The following was established:a) There was a need to restructure the DRDLR into two separate units: a land management unit dept. and a rural and agrarian government component;b) The need to inspire the people in the DRDLR to deliver on the mandate (implementation and execution of the Renewal Strategy);c) The need for regular Environmental Scanning to determine emerging opportunities and early warning disaster signals;d) The need to develop a Strategy to interact with Transactional Partners;e) The need to have a mechanism to monitor, report and verify Outcome 7 (esp. From Transactional Partners);f) The need to identify and record both endogenous and exogenous impacts from activities of the DRDLR and Transactional Partners;g) Selling of the outcome of the Foresight exercise;h) APP 2011/12 needs to be reviewed;i) An operational plan and operational model needs to be developed.

Strategic Implication 5: Redundancy and Retrenchment of current Projects and Programmes

Cottong, S. (November 24, 2011.) On Forecasting, Backcasting & Design . Retrieved December 3, 2011 from http://www.sylvaincot-tong.com: http://www.sylvaincottong.com/management-models/on-forecasting-backcasting-design-thinking/

Hietanen, O., Lefutso, D., Marais , M., Munga, N., Taute, B., Nyewe, M., et al. (2011.) How to create national foresight culture and capacity: case study South Africa. Ekonomiaz , 76 (1), 144-185.


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What are the practices, projects and programmes that have become redundant as a result of the Foresighting process?

The broad answer to this question was that there was need to:Get rid of the culture of “confusion”..

REFERENCES

RAIL MODERNISATION: IS IT THE SOLUTION FOR SOUTH AFRICA’S TRANSPORT PROBLEMS?


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The recent announcement of the R123billion and R110billion investment into South African railways to both Passenger Rail Authority of SA (Prasa) and Transnet Freight Rail respectively, must be commended. This is in line with global practice, especially in developing States which have identified rail as one of the significant drivers of our economy. The combined efforts of Prasa and Transnet to improve their rolling stock will after China, make South Africa the second-largest market for locomotives, worldwide.

Rail transport plays a critical role as regards enabling mobility and access to both economic and social activities. Indeed most industries rely on the efficient movement of cargo from origins

RAIL MODERNISATION:

FOR SOUTH AFRICA’S TRANSPORT PROBLEMS?

IS IT THE SOLUTION

Njabulo Sithebe (Coega Youth Leadership Academy) Siphamandla Gumbi (Somkhanda Management Consulting)


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such as farms, mines, and manufacturing plants to destinations both within and outside South Africa. In fact TFR carries over 90 million tonnes per annum, excluding coal and iron ore exports. Meanwhile, over two million people rely on trains for moving to and from work every day. The majority of people using rail transport in South Africa come from poor and working class families, given the historical apartheid spatial planning.

The bias toward rail is logical since rail represents the transport mode most frequently used by trade-intensive industries. Secondly, the majority of poor households will benefit from the low cost of travelling by train. For most of such households, transport is an important expenditure item: for households with a total monthly income of between R500 and R1000, almost 23% of their total income is spent on transport; and those between R1000 and R2000 are spending 14%.

Emerging economies have realized that they can play a critical role in balancing the skewed ratio between road and rail transport. There are more than 30 million kilometers of roadways in the world, compared to roughly one million kilometers of railway. The concern about establishing the correct transport solutions are also driven by concerns about rising oil prices; transport related emissions; and high logistics costs.

Leading emerging markets such as The People’s Republic of China (PRC) have steadily been expanding their railways and intermodal systems. India is also making a substantial investment by substantially expanding – and investing in – the functionality of its transport-network. The experience of these emerging markets has demonstrated that modern railways can play a major role in enabling inclusive economic growth, and may even have positive effects on poverty levels in the hinterland areas.

South Africa’s emerging infrastructure strategy exists within the context of a broader national effort to address structural constraints in the national economy – together with a drive to compete successfully with other emerging markets.

South Africa’s total logistics costs are 13.5% of our overall GDP; whereas in developed European economies, this figure is in the region of 7%. It stands to reason that bringing down the logistics costs lowers the cost of doing business in a country; and that this is critical as regards its competitiveness. This is exactly why Transnet’s “back-to-rail strategy” is one of the backbones of SA’s new growth path.

Global experiences have also shown that over-reliance on road transport is a key impediment to growth and development in most of the emerging economies. The cost of this reliance lies not only in the massive environmental impact of busses and trucks, but also the huge effect this has on the degradation of both road infrastructure and inefficiencies in terms of the time it takes to move people and goods. Rail is an excellent investment for emerging markets because they create a sustainable

PERSPECTIVES 2012 4TH EDITION RAIL MODERNISATION: IS IT THE SOLUTION FOR SOUTH AFRICA’S TRANSPORT PROBLEMS?

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infrastructural backbone on which an entire economy can be built. South Africa seeks to align its transport operations with these trends in developmental thinking. The overall focus is on helping to establish a sustainable pattern of responsive modes regarding transport-methods that emit less.

However, the challenges that face our country are not limited to a dilapidated infrastructure and aged rolling stock. There are urgent issues regarding efficiency which must be addressed. Travel, time and reliability are amongst the highest factors determining satisfaction vis-a-vis existing modes of transport. The infrastructure roll-out as announced by Prasa will extend a long way into the future, whilst continuing to address the latter as well.

Studies have shown that since the 1960’s railways in several countries have been experiencing a decline in market shares; as well as rising input prices and increasing competition from other modes of transport. In this context, for any railway operation to succeed, there has to be an improvement in productive performance or efficiency. South Africa certainly did not escape the decline in rail market share. Whereas TFR carried almost 88% of all freight in South Africa by 1980, by 2008 this figure had been reduced to a mere 38%. Rail has lost its market share; and closer analysis reveals that the current situation has become far more complex owing to road freight transport revealing hidden costs. Nowadays, there is increased competition due to operating within a globalised environment. Freight owners need assurance regarding a realistic estimation of time and date for the arrival of their goods. Unfortunately, due to the aged infrastructure, both TFR and Prasa have in most cases been unable to provide that guarantee. In fact, media reports have indicated that some of the Metrorail Trains burned by commuters were supposedly due to delays (which commuters claim to have cost them their jobs)

Some of the above have led to rail-friendly commodities (like coal, automotive components, iron ore, and other hazardous goods) being transported by road instead of by rail. This has had detrimental effects on the road network, causing the latter to deteriorate prematurely; and thereby compelling government to re-prioritise its spending at the expense of other pressing social needs.

Thus there appears to be scope for improvement in the spheres of both service and cost spheres in with respect to both rail and road freight movement in South Africa. This strengthens the case for modernizing rail in South Africa; whilst concurrently improving efficiency so that rail friendly commodities may move in that direction.

Global lessons show that – by nature – railways are multi-product enterprises. Their output has a spatial dimension, whilst also affecting production processes and quality attributes. Successful railway operations in countries such as Japan and Norway emphasise balancing all of the above in order to run an impeccable system. These countries strive to ensure a complex combination of production processes involving primary, intermediate and secondary inputs in order to make up an efficient railway system.


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Multi products of rail:• Primaryinputs• Intermediateinputs• Secondaryinputs• Energy• [Drawing]Labour• Land• Capital• Othermaterials• Car/wagonavailability• [Drawing]andmaintenance• Yardoperations• Trainoperations• Trackmaintenance• Management• Administration• Marketing

Successful rail operations around the world have shown consistency in balancing the above inputs. In order to deliver a successful railway production process, all the above elements have to synchronize.

The South African rail modernisation program focuses on several elements in the primary and intermediate inputs. Providing new wagons and locomotives as well as improving infrastructure does not automatically address skills shortage to ensure that there are enough engineers to maintain the trains and keep the tracks in good condition. Neither does it ensure that management systems and operations (as well as the mentality of workers and managers) is continually improved upon in order to be consistent with international standards.

Management systems relating to general operations such as pricing, train scheduling, inter-modal operations, fleet maintenance, customer relations and so forth, must be improved in conjunction with the intended modernisation of infrastructure and wagons. This is the only way in which there is a possibility that the South African government might achieve the intended benefits by means of a massive injection of cash into rail.

Only in this way may the possibility of rail becoming a mode of choice for all people-throughout South Africa, and regardless of class. We may even see rail-friendly commodities moving away from roads towards rail. This move may even rectify the imbalance between road freight and rail freight market share. At the moment, rail’s market-share is down to 23%. However, it transports this 23% at 10% of total freight movement costs (i.e. it is much more economically/fuel efficient). If one adds kilometres per ton (i.e.effort) then rail is exerting 35% of the freight movement effort, but at only 10% of total costs. Furthermore, rail emits less green gasses into the atmosphere. Therefore, an increased use of rail has the potential to assist SA in meeting its environmental preservation obligations in the future.


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In considering the issues of transport in general, the most pertinent question is as follows: what are the highest social and economic returns for the level of resources employed? In such a context, planners must adopt an outcome-centered perspective, focussing on the outcomes that matter most to the end-users. The clear imperative for rail transport is to strive for higher performance. This is required for supporting and improving people’s lives and their economies.

The South African government has publicly committed to building a developmental state. Such a state is biased towards expanding and maintaining social and economic infrastructure, addressing the uneven spatial social and economic landscape. The vision of the developmental state is that all its activities should transform the industrial structure and change the patterns of spatial planning so as to secure the long-term development of our country’s productive forces.

This means that all transport initiatives of the developmental state should maintain a strategic role in shaping the key sectors of the economy, intervene in a number of ways to ensure that the national transport and logistics system play a supportive role in the development and transformation of the economy. The ultimate objective must be to ensure that our system transports goods and services at the most efficient levels and still meet the basic needs of the majority.

Through the New Growth Path, the country’s national development plan, South Africa has established key development agendas to guide planning for the next 30 years. The need for better transport is common to all of these agendas. Transport is a major part of the infrastructure drive of the South African government.

Railways can offer more efficient, lower-emission transport solutions for long-distance freight and passenger traffic. This is particularly so when the latter are supported by improved multimodal transport solutions that combine the comparative advantages of the different modes.

Rail also has an important role to play in strengthening SADC trade intergration. SA needs to support freight movements where possible by focusing on the development of regional trade. Intra-regional trade comprises only 12% of all trade within SADC, compared with African North American trade (40%) and African-Western Europe trade (60%). With the foregoing in mind, more regional transport will create conditions to broaden African economic integration, thus widening trade opportunities and boosting the internal market in Africa, as well as unlocking the potential to increase inter-African trade.

THE ROLE OF RAIL IN BUILDING AN EFFECTIVE DEVELOPMENTAL STATE


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The aims that South Africa should seek and propose in working out its rail expansion programme should directly be linked to our understanding of the role of enabling conditions for the flourishing of the productive potential of our country. At the moment, it is estimated that almost half of South Africa’s rail network has low levels of activity. A well-designed process of addressing rail backlogs can deliver massive job-creation and revitalise space economies. This structural situation makes it important for us to reflect on the crucial developmental role of rail.

Our rail strategy must facilitate the movement of critical production inputs which are required to initiate a process of integrated industrial development. Furthermore, the provision of rail on a large scale, and on a low-cost basis, will go a long way in reducing the cost of living and production. An efficient transport network will therefore improve the competitiveness and efficiency of the economy as a whole. We thus need to create a long-term developmental role at the centre of our transport plans, in order to ensure that there is synergy between the national vision and the transport plans, for instance.

In that connection, it is important that all rail initiatives should strengthen critical economic assets. They should promote industrial development, not just in terms of increasing the efficiency of the transport services, but more importantly, in helping domestic suppliers of inputs to improve their role, in line with the National Industrial Policy Framework and the New Growth Path. In this set-up the socio-economic implications of expanding rail are enormous. A key capacity in this case is for rail to stimulate the resources that are embedded in the communities that it reaches in order to open new economic opportunities.

Clearly, there is a vitally important connection between the quality of life that we envision for South Africans and access to transport. The economic significance of this linkage is great – because transport is an intrinsic element for nearly all other economic activities. A highly efficient and integrated transport system that means people and businesses can connect without excessive cost or delay. As a measure of its significance, all economic issues and social interactions have transport aspects.

In conclusion, the investments into rail represent a concerted effort to deepen and broaden downstream and upstream linkages in the economy, providing an opportunity to source inputs from within the region, and to stimulate the industrialization process. The IDC notes that the domestic steel industry could develop and/or expand the manufacturing of train wheels, train tracks and other engineered parts. Furthermore other industries could be expanded to supply material specifically for the coaches, such as upholstery, benches, electronics and electric motors amongst others. Strong transport linkages within and between regional economies, will serve the drive for a coherent development strategy.


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We must use the infrastructure development and maintenance programme as the basis for work creation: through the infrastructure development and maintenance programme, government has to build basic pillars of decent work throughout the entire economy.

Government’s ambitious infrastructure programme should support the growth of our supply sectors, unlock key bottlenecks in the economy and underpin the structural transformation that we seek. It is a programme based around strategic integrated projects that will have a catalytic impact on job creation: unlocking resources, developing the poorest regions of our country, overcoming spatial inequalities and developing the SADC region. With the focus extending to embedding successful and strategic industries, leveraging existing distribution and procurement lines to stimulate development of new sectors and subsectors in those value chains.

The key thing in this logic is the linkage between infrastructure development and localization of industry. Without localization, the private and public sector will be severely limited as regards retaining and creating more jobs. Increased import penetration will weaken job creation, lead to less than proportionate increase in demand and economic growth, provide an insufficient expansion in the tax base and worsen the public sector’s budget balance. It is therefore important that procurement processes be strict when it comes to the localization aspect. This is a policy matter that requires the mobilization of monitoring and evaluation capacities of the entire government system, because its role in ensuring sustainability of the labour-intensive growth path is central.

Over the long-term, the social and economic dividend of building an efficient transport system is enormous. The need to use global best practice under these circumstances and to impart a long-term development perspective on economic activity is thus indispensable.

REFERENCESCSIR. (2009.) 6th Annual State of Logistics for South Africa. Johannesburg: CSIR.

Pittman, R. (2005.) Structural separation to create competition? The case of freight railways. Review of Network Economics 4 (2005), 181-196.

Rietveld, P. (2008.) Ex Ante Evaluation of Railway Station Development Projects: Issues still to be solved. Railway Developments: impacts of urban dynamics , pp. 147-169.

Shaw, A. (2005.) National Freight Logistics Strategy: Detailed Supporting Analysis. Johannesburg

Van der Meulen, RD & Möller, LC. (2006.) Railway globalization: Leveraging insight from developed- into developing regions, Proc. 7th World Congress on Railway Research [CD-ROM]. Montréal, Canada.


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The changing landscape of South Africa’s defence industry has seen major, strategic shifts from one paradigm to another; and in the process the nature, role and responsibility of the defence force has shifted in order to follow a more development-orientated trajectory, albeit at the expense of the industry in general (Vrey, 2012; Haines, 2012; Batchelor and Dunne, 1998; Hatty, 1996). The current South African Defence Review (2012) aims to address some of the challenges with the earlier instalments of the Defence polices (1996, 1998), and the changing national and international landscape in terms of defence, security, development and technology.

INTRODUCTION

THE SOUTH AFRICAN DEFENCE REVIEW

AND CHALLENGES (A VIEW FROM THE EASTERN CAPE)

NATIONAL OPTIONSIdriss Mouchili (Coega Development Corporation) Prof. Richard Haines (Nelson Mandela Metropolitan University) Amy Shelver (Nelson Mandela Metropolitan University/Meropa Communications)

THE SOUTH AFRICAN DEFENCE REVIEW: NATIONAL OPTIONS AND CHALLENGES (A VIEW FROM THE EASTERN CAPE)


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Following the fall of apartheid – when the then incumbent government of national unity held the guiding reigns of the future of the new South Africa – there was a distinct, calculated shift towards de-militarisation (Cock, 1998; Nathan, 1993). The reasoning for this approach was based on, inter alia, ensuring that a decisive ideological break was made from a military-mobilised state to a peace-time state (Cawthra, 1998). The new policy framework made a distinct break from the pro-military apartheid government’s stance on defence – and saw the demise of a once thriving industry, during which expenditure went from a high of R17-billion in 1990 to R10.6-billion in 1995, thus constituting a rapid decline (Hatty, 1996). The ensuing trajectory from 1996 through to 2012 has seen the production of three white papers in the space of 14 years. The most recent acknowledges various significant changes in the international and national landscape; and is in long-needed recognition of some of the shortcomings of the 1996 White Paper on Defence and the subsequent South African Defence Review of 1998. However, the new policy proposal does not come without its own set of challenges – as the density and complexity of defence and development tandem together. Challenges aside, the recent revision of the Defence White Paper shows immense scope and coverage – as well as options for a (re)development of various sectors of the industry – a welcome outlook for local economic development.

The following paper examines the South African Defence Review (2012) concentrating on its strategic goals, whilst examining national options and challenges within the current document, and drawing on debates from the Eastern Cape instalment on the public engagement sessions held across South Africa in 2012. One of the central focal points is the important role which the defence industry holds as regards stimulating local economic development and its part in fuelling backwards and forwards, links between related and unrelated industries: most particularly maritime, engineering and manufacturing. The consultative document sets out five major goals for achieving the defence mandate and analyses these against the level of defence effort:

Goal 1: Defend and protect South Africa;Goal 2: Safeguard South Africa;Goal 3: Promote Regional and Continental Peace and Security;Goal 4: Meet Ordered Tasks;Goal 5: Defence Oversight and Administration

Besides these, a number of other critical factors are considered in the South African Defence Review (2012) consultative draft. These include an analysis of the South African developmental state and the military’s role therein; as well as the overall strategic defence environment, in which the document distils global security trends to the regional and domestic domain. On the back of almost 15 years of defence industry limelight, after the notorious arms deal thrust defence spending and the politics of accumulation within range of the public eye, the Defence Review (2012) also looks


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at comparative defence spending in the context of decline and demilitarisation. It acknowledges that the lack of defence spending has “eroded defence capabilities to the point where the Defence Force is unable to fully deliver its constitutional responsibility to defend South Africa and its people; and, furthermore, cannot even support the current modest level of ambition”. (2012:99). This startling discovery had serious ramifications across a broad range of industries in South Africa and, critically, has impacted on economic development opportunities traditionally stimulated by the defence industry. This reality forms one of the major challenges of the new policy environment.

The Review also looks at the role of the defence force in national security, charting a blueprint for the force structure and design, as well as for civil control and the future of the defence organisation. It outlines cross-cutting defence support interventions and provides an overview of the South African defence industries. In all it provides a comprehensive outline of South Africa’s defence past, present and immediate future. Significantly, the national options and challenges that emerged from the Review process are substantial; but in the context of South Africa the latter rely critically on the Department of Defence’s ability to lever the options in order to raise the level of socio-economic impact – particularly in provinces where the industrial base is undiversified, unemployment high, and the need for local economic development crucial for the stability of such regions. The Eastern Cape is, as will be shown below, a prime example of a South African space in which the defence national options could maximize development – tapping into existing development frameworks such as the Coega and East London Industrial Development Zones (IDZs) and its strategic positioning on maritime corridors. This paper first provides a snapshot of the historical context of the White Papers and Reviews, and then summarises the new consultative drafts. Lastly, it charts emerging issues and a way forward in the new policy context.

Many argue that when the government of national unity (GNU) took control of South Africa, the military was already in a state of decline (Botha, 2003; Batchelor, Dunne and Lamb, 1998; Cock 1998; Hatty, 1996). It is therefore debatable as to whether the moves taken by the GNU and the subsequent ANC-elected government were the sole reason for the overall toning down of the defence industry, which had major implications for South Africa in the long run.

A number of overlapping factors led to significant vicissitudes – not only in the South African industry, but world-wide. The end of the Cold War had global ramifications for the international arms trade; and defence spending across the world went into decline after 1989. Given that in the 1980s South Africa had re-orientated itself so as to focus on an export-led market for its defence industry – and the fact that its altercations with neighbouring states had been resolved by the late 1980s – this ‘blow’ meant

HISTORICAL CONTEXT



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that there was no longer a need to maintain a strong military force (Botha, 2003). Coupled with a United Nations embargo that lasted until 1994; and a United States embargo that went on for even longer, it was no wonder that the defence budget was cut by 40% between 1989 and 1994; and that procurement declined 60% over that same period from R5.5-billion to R2.2-billion (Botha, 2003). Moreover, the GNU and the ANC needed to use the policy environment to draw a line through the past; and to move forward cognisant of the developmental needs of the nation instead of its military needs, which drew significantly on State resources. The result was the initial two policy papers, the White Paper on Defence (1996) and the Defence Review (1998). A policy revising the past also showed a decisive break with the previous regime’s use of the military as a tool of oppression and the new dispensation. However, Cock (1998) notes that the GNU inherited the most powerful army in sub-Saharan Africa, with sophisticated weaponry, infrastructure and equipment; and an extensive arms-manufacturing capability after it militarised between 1976-1990 – mobilised for war at political, economic and ideological levels (Cock, 1998; Cock and Nathan, 1989 in Cock, 1998). What was the new government to do with this powerful machine it now had at its disposal?

As it turns out, both something and nothing:

The policy environment between 1996 and 2012 provides an indication of the moves taken to both demilitarise, maintain a core force and mandate, and also to internationalise where possible. A snapshot of the policy prescriptions and changes over a 14 year period are outlined below, culminating in the Defence Review of 2012, expanding on this in the following section.

The South African arms industry before 1994 was substantial and well-established, boasting world-class technology and products, and relative self-sufficiency in arms production (Hatty, 1996; Botha, 2003). However, it was also inextricably linked with the apartheid government and its tactics of oppression. The then new White Paper on Defence (1996) was therefore a policy framework for the ‘agenda for demilitarisation’ (Nathan, 1998), thus bringing policy in line with other changes in the country, including democratic trends, the Bill of Rights and international law (ibid.). The White Paper considered the overarching challenge of transforming defence policy and the armed forces, in the context of the Constitution, national security policy, the RDP, and international law on armed conflict. It examined civil-military relations, with reference to the constitutional provisions on defence, transparency and freedom of information, defence intelligence, the structure of the Department of Defence (DOD), military professionalism, civic education, the responsibilities of government towards the SANDF, and the rights and duties of military personnel. It also outlined the external and internal strategic environment and the importance of promoting regional security. The 1996 White Paper covers the primary and secondary functions of the SANDF, human resource issues, the maintenance of an all-volunteer force, and the part-time force. It also touched on rationalisation and demobilisation,

The policy environment between 1996 and 2012 provides an indication of the moves taken to both demilitarise, maintain a core force and mandate, and also to internationalise where possible. ’

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equal opportunity, affirmative action, non-discrimination, gender relations and defence labour relations. It also analysed budgetary considerations, arms control and the defence industry, as well and land and environmental issues (White Paper on Defence, 1996:44-5). Nathan (1998) notes that the policy themes which the White Paper touches on amounted to a complete transformation of the military and defence environment in South Africa – and was “radical in its content and orientation” (1998: 43), taking on a profoundly anti-militarist stance. Although it comprised of only 37 pages, it re-maps the South African defence terrain and focuses on security rather than defence, conclusively stepping away from an apartheid-style approach to defence (Cawthra, 1998). It also embraced the developmental role of the military, framed by an ideology of security. “The 1996 White Paper reflected the prevailing assumption that the new democratic era would ensure a period of peace, prosperity and stability. This would allow the defence budget to be significantly reduced to the benefit of social spending: thus butter would be bought instead of guns” (Mills, 2011:6).

The Defence Review (1998) followed on from the 1996 instalment. According to Nathan, the new South African defence paradigm was dramatically different from its predecessor, but quite in line with established broader defence thinking of the time (in Vrey, 2004; Mills 2011:7). It proposes that the White Paper’s initial broad ambit “made allowance for addressing the requirements for greater detail through the Review so as to include ‘comprehensive long-range planning on such matters as doctrine, posture, force design, force levels, logistic support, armaments, equipment, human resources and funding’, thus representing the completion of the policy development process” (also see Vrey, 2004:99). The Constitution and the 1996 White Paper ‘Defence in a Democracy’ are quite unambiguous in defining the ‘primary’ function of the SANDF as that of defending and protecting the state, its territorial integrity and its people; however its acquisition of arms and equipment has seen it play a greater than anticipated role in peacekeeping on the continent, in spite of the fact that the 1998 Defence Review clearly states that participation in international peace support missions is a secondary function for the SANDF (Mills, 2011).

The Defence Review (1998) itself included a chapter on the defence industry, positioning South Africa and its defence-related industries in a broader context. The Review also provided a number of policy guidelines that would give direction to the industry, including the following: competitive procurement; self-sufficiency no longer constituting a criterion; local producers to be used whenever possible; and that Armscor should make orders as high up in the system’s hierarchy as possible (Botha, 2003: 3-4). Vrey (2004) notes that although the White Paper on Defence (1996) and the Defence Review (1998) “represent much groundwork for forging a new paradigm, a supporting military strategy for the SANDF only came into effect by 2001” - thus establishing the new policy realms to roles and missions for the SANDF. “The 2001 Military Strategy clarifies how the roles of the SANDF (as defined



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in the Defence White Paper) are to be executed; and also provides a window on a preceding time frame of six years and repeated efforts to interface the crucial policy-strategy continuum by accommodating or acknowledging deep policy changes” (Vrey, 2004). The 2012 Defence Review is therefore a logical extension of the overall process initiated in 1996. It takes cognisance of the changes in the international and local defence industry and encompasses a new policy and strategy for defence. This was done in the context in which, while the 1996 White Paper and 1998 Defence Review were seminal documents, the latter were created in order to assist the transition from apartheid to democracy. This is no longer the case, and development remains a pivotal outcome for continued security in South Africa.

The new Defence Review acknowledges changes occurring in the external, domestic and strategic environments of South Africa. Within the new political dispensation there has been some acknowledgement: both of what was lost in the defence policy shift, as well as the new trends emerging in the defence arena, as the pace of globalisation accelerates - and with it a greater need for more complex and integrated thinking around defence, security and development. South Africa’s defence policy required reviewing in order to ensure continued relevance and legislative compliance. It for this reason that the then Minister of Defence and Military Veterans, Honourable Lindiwe Sisulu, constituted the Defence Review Committee in July 2011 so as to review the current policy. The draft Defence Review 2012 was made public by Sisulu on April 12, 2012; and a number of consultation events were conducted in the period leading up to the Minister’s Budget Vote on May 17. Thereafter the Defence Review Committee (DRC) proceeded with the public participation process throughout the rest of South Africa, using engagement vehicles such as provincial Imbizos, established forums and stakeholder engagements. This phase drew to a close on July 28, 2012. The last round of amendments and inclusions were tabled into a draft on November 6, 2012. The Eastern Cape leg of the Private-Public Participation (PPP) process, the final comment session, drew a range of stakeholders and specialist input, including academic evaluations, input from various state and parastatal agencies, business, labour, civil society and third sector organisations.

Overall, the Defence Review (2012) successfully defines the strategic intent of government regarding defence, including the utilisation of the defence force. Defining the strategy framework are the defence mission, goals and tasks; the level of defence effort; the force structure and defence capabilities required.

In general, the document focuses on a number of key issues that ensure that the policy review takes stock of new challenges and opportunities in both global and domestic contexts. It emphasises the fact that South Africa’s strategic environment has become more fluid (2012:35) – and takes note of regional and continental challenges, framed by the ‘new Scramble for Africa’

NEW 2012 DEFENCE REVIEW


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– such as “non-traditional security threats, non-state actors and non-conventional manifestations of insecurity and instability that characterise the contemporary environment, with greater propensity for international intervention in conflict areas” (2012: 35). It emphasises the pressure on South Africa to assist the United Nations in peacekeeping on the continent and management of regional conflict – resulting in it being the 10th largest troop contributor to the UN peace missions (2012:36). Moreover the impact of global security threats, terrorism and weapons of mass destruction, is reflected in the document, though in a context that while it is important to acknowledge these trends, “factors of insecurity such as underdevelopment, poverty, access to vital resources, the spread of diseases and environmental security, are more crucial for Southern Africa and the developing world” (ibid.). Domestically, it charts an increase in the Defence Force’s responsibilities: for instance the reinstatement of the Defence Force’s role in protecting South African borders – land, air and maritime – a role it previously held but experienced a hiatus of 12 years (2012: 38). Additionally the role in a developmental state is analysed. The Review outlines that while the defence force must not detract from its mandated functions, it should express both how the execution of its mandated functions and other specific initiatives will contribute to the development of South Africans: one in which “great care must be taken to ensure sound civil-military control” (2012:38). The Defence Force’s primary developmental roles include (a) serving a valuable social role, particularly in a diverse society; (b) providing an economic boost to targeted areas of the country; and (c) leveraging the establishment and development of some sectors of industry. In addition to its inherent potential, the Defence Force can, again without detriment to its primary functions, carry out directed actions to support national development if additional funding is provided for this purpose (2012: 56). It notes that peace, stability and security are essential preconditions for development; and that the role of the Force is to ensure conflict management and peacekeeping internally and externally. It is sobering to realise that the Review (2012) also recognises that the current defence capabilities are inadequate: “The assumptions against which the 1998 Defence Review Force Design was constructed quickly became invalid. The selected force design was never attained and remained out of reach within a dwindling defence budget” (2012: 39).

A number of new threats are identified in the Review, including inter and intra-state conflict and war, competition for strategic resources, acts of terror, weapons of mass destruction and other lethal weapons, environmental factors and climate change, the emergence of mercenaries and private military, poverty, underdevelopment and inadequate human security, migrations and large scale population movements, health, transnational crime, non-State actors, general crime, syndicated criminality, illicit economy, social unrest, cyber-security and extremism (2012:62-79). The Review notes that:

National security is viewed in a broader context as an all-encompassing condition, which includes the safeguarding of

The Review outlines that while the defence force must not detract from its mandated functions, it should express both how the execution of its mandated functions and other specific initiatives will contribute to the development of South Africans: one in which “great care must be taken to ensure sound civil-military control”’

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South Africa and its people against a wide range of threats, many of which are non-military in nature…. Furthermore, the interrelatedness and transnational nature of many contemporary security threats dictate that solutions are often beyond the control or capability of any single state and would, therefore, require collaborative action within multilateral organisations and collective security mechanisms at the international, continental and regional levels (2012: 80)

In terms of the section in the document covering comparative defence expenditure, the Review shows how South African defence trends from the mid-1990s differed somewhat from global experiences due to its political history, but also failed to understand the complexity of the impact of the defence industry resulting in an underestimation of the significance to the economy of the country’s defence industrial base. The previous defence procurement exercise (Strategic Defence Procurement) in the period following the 1998 Review saw a significant external orientation in terms of defence equipment purchased, which placed a strain during the past few years in balancing the relatively modest defence budget, in the context of a declining share of the Gross Domestic Product (GDP). This led Sisulu to proclaim: ‘Our budget is woefully inadequate’, during her second annual budget vote in 2010. She argued that South Africa requires a defence budget of around 2% of the GDP, instead of the present 1.3%. “The defence department’s central argument … is that, despite an allocation of R30.7 billion, the defence force is underfunded by R7.3 billion, in the 2010/2011 financial year” (Defence Web, 2010). She stressed that the defence department’s inadequate budget was affecting its operations. In her 2011/12 budget speech in 2011 Sisulu again complained that the SANDF’s budget was hopelessly inadequate. The current budget allocation for the 2012/13 financial year is R37.5-billion up from last year’s adjusted allocation. It is expected to grow to R39.9-billion in 2013/14 by 6.5% and reach R42.1-billion in 2014/15, up by 6%. South Africa’s defence budget is the lowest in terms of percentage of GDP of all the BRICS (Brazil, Russia, India, China and South Africa). Interestingly, a number of other high-performing developing and transitional economies have increased their defence expenditure in the past decade, indicating a link between high performance and a stronger defence industrial base. Such economies have seen the advantages of retaining and/or expanding their defence industrial bases on a national level, and in some cases (e.g. the Far East) on a regional level as well.

The effect of military expenditure on economic growth in developing countries has been investigated by many empirical studies (Pieroni, 2009). However, there is little consensus to that effect and studies have been inconclusive in finding the linkages between military expenditure and economic growth, capital formation, skills transfers and trade. Some studies find no significant relation between military expenditure and economic growth some a negative relation, and others a positive one. Military expenditures can have a spill-over impact on the economy, in Research and Development (R&D), transport and


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telecommunication infrastructure, human capital and value chain applications for small and medium enterprises (SMMEs). Defence spending in Africa is low by global standards, although it has increased by 51% in the past decade, mirroring its economic growth. Figure 1 shows comparative defence spending for selected countries.

Figure 1: Defence expenditure in $USD, as % of GDP and as % of Government expenditure (Defence Review 2012)

South Africa military expenditure represented 1.2% of its GDP in 2009, down from 4.6 % and 2% in 1989 and 1995 respectively. The downward trend in military expenditure is likely to result in a mismatch between policy commitment in Africa and the implementation thereof. The percentage of national funds committed to the SANDF in the near-, medium- and long-term futures will shape the kind of defence force and associated national defence industry within and without the country. Increased funding could see a larger and more developmental SANDF with an increased regional peacekeeping role, as well as a higher presence in Antarctica, South African maritime waters and strategic spheres of interests. It would make better economic sense for the local defence industry to gain a larger percentage of future weapons and systems procurement, as well as procurement more generally. The decreased size and shape of the South African national defence industrial base has been part of the overall process of the de-industrialization (with its concomitant job losses) of South Africa since the late 1980s. There is a greater interplay in the post-2000 period between commercial and defence industries, especially of a high-tech and information technology nature. A further consideration in terms of defence expenditure and procurement is the current and regional expenditure patterns which currently favours the Gauteng, Western Cape and KwaZulu Natal provinces. The draft 2012 Defence Review envisages a more direct invocation of local and sub-national procurement so that defence expenditure can have a discernible developmental social and economic impact (Defence Review, 2012).

year is R37.5-billion up from last year’s adjusted allocation. It is expected to grow to R39.9-billion in

2013/14 by 6.5% and reach R42.1-billion in 2014/15, up by 6%. South Africa’s defence budget is the

lowest in terms of percentage of GDP of all the BRICS (Brazil, Russia, India, China and South

Africa). Interestingly, a number of other high-performing developing and transitional economies have

increased their defence expenditure in the past decade, indicating a link between high performance

and a stronger defence industrial base. Such economies have seen the advantages of retaining and/or

expanding their defence industrial bases on a national level, and in some cases (e.g. the Far East) on a

regional level as well.

The effect of military expenditure on economic growth in developing countries has been investigated

by many empirical studies (Pieroni, 2009). However, there is little consensus to that effect and studies

have been inconclusive in finding the linkages between military expenditure and economic growth,

capital formation, skills transfers and trade. Some studies find no significant relation between

military expenditure and economic growth some a negative relation, and others a positive one.

Military expenditures can have a spill-over impact on the economy, in Research and Development

(R&D), transport and telecommunication infrastructure, human capital and value chain applications

for small and medium enterprises (SMMEs). Defence spending in Africa is low by global standards,

although it has increased by 51% in the past decade, mirroring its economic growth. Figure 1 shows

comparative defence spending for selected countries.

Figure 1: Defence expenditure in $USD, as % of GDP and as % of Government expenditure (Defence Review 2012)

South Africa military expenditure represented 1.2% of its GDP in 2009, down from 4.6 % and 2% in

1989 and 1995 respectively. The downward trend in military expenditure is likely to result in a



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mismatch between policy commitment in Africa and the implementation thereof. The percentage of

national funds committed to the SANDF in the near-, medium- and long-term futures will shape the

kind of defence force and associated national defence industry within and without the country.

Increased funding could see a larger and more developmental SANDF with an increased regional

peacekeeping role, as well as a higher presence in Antarctica, South African maritime waters and

strategic spheres of interests. It would make better economic sense for the local defence industry to

gain a larger percentage of future weapons and systems procurement, as well as procurement more

generally. The decreased size and shape of the South African national defence industrial base has been

part of the overall process of the de-industrialization (with its concomitant job losses) of South Africa

since the late 1980s. There is a greater interplay in the post-2000 period between commercial and

defence industries, especially of a high-tech and information technology nature. A further

consideration in terms of defence expenditure and procurement is the current and regional expenditure

patterns which currently favours the Gauteng, Western Cape and KwaZulu Natal provinces. The draft

2012 Defence Review envisages a more direct invocation of local and sub-national procurement so

that defence expenditure can have a discernible developmental social and economic impact (Defence

Review, 2012).

Figure 2: Trends in South African Defence funding allocations (Defence Review 2012).

During the Eastern Cape leg of the PPP, the Eastern Cape participants took due cognisance of

opportunities and development benefits provided by the Defence Review (2012) and made the case

for a range of new emphases, orientation and interventions by the SANDF. Participants also

engendered a greater appreciation of the policy, providing for increased interaction and partnerships

between the SANDF and other public, parastatal, private and third sector parties as well as

Figure 2: Trends in South African Defence funding allocations (Defence Review 2012).

During the Eastern Cape leg of the PPP, the Eastern Cape participants took due cognisance of opportunities and development benefits provided by the Defence Review (2012) and made the case for a range of new emphases, orientation and interventions by the SANDF. Participants also engendered a greater appreciation of the policy, providing for increased interaction and partnerships between the SANDF and other public, parastatal, private and third sector parties as well as individuals. The document and session showed scope for a defence force with a more defined developmental mission and objective, and increased civic responsibilities. Also, by proposing options such as additional bases and/or increased SANDF presence in regional and local areas, spin-offs such as new job creation, the stimulation of economic activity and growth, and new possibilities in regard to infrastructural development could evolve. Indeed, among the important debates in international circles there is a need for more decentralisation and de-concentration of central government structures and functions. Greater SANDF presence should contribute to improved social peace – a key component in constructing more sustainable economies. The document and participants also revealed distinct opportunities for Eastern Cape business in the future, with the question of procurement becoming a more central aspect of national and provincial industrial policy; and with newer forms of defence-industrial participation opening up new counter-trade and investment opportunities in regard to national and multi-national defence obligors. A further factor of relevance is the Eastern Cape’s extensive coastline, and the increasing importance of securing resources and shipping lanes; as well as the developmental and strategic dimensions, including the establishment of compact naval and coastguard bases or stations, or even dual use technologies providing cost-effective means of dealing with such growing priorities. Other vital considerations included veteran pensions, the future role of unions within the SANDF, and issues which impact on progressive citizenship and transformation.

Some of the pertinent questions from Eastern Cape participants included the following:• Whatismeantby“doctrine”?Thelatterpartofthedefence


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review document responds to this aspect.• Whatisthedevelopmentalagendareferredtointhe document?• Whatstrategiesareinplacetoaddresstheskillsofdefence force employees? Is conscription an option? How are people going to be re-skilled once their services are no longer required as soldiers?• HowwillSouthAfricadefenditsvastmaritimearea?• What measures are in place for coastal control? What is the maritime security strategy?• Howdoweexercisebordersecurity?• Given the limited defence budget, to what extent will the SANDF be able to assume the developmental interventions required? Would partnerships be formed?• How should veterans be accommodated? What role could they play?• What is the SANDFs involvement with peace-keeping operations?• IstheSANDFresponsiblefordealingwithrefugees?

The DRC responded to the above queries and noted, on issues not already covered above, the following:

The training system in defence has to be adjusted (Defence Review, 2012, Chapter 11) to facilitate broad-range skills development, so that upon leaving the defence force, human resources are capacitated with skills that are applicable elsewhere. Training courses should be equated to NQF. The DRC noted that the SANDF will need a different type of leader in future for unknown challenges, and therefore a more responsive training system is required. The Defence Review (2012) document calls for the creation of working regiment that will take over from public works all minor and major works for defence in order to maintain all facilities, thereby up-skilling the Force.

In terms of maritime roles, the DRC stated that South Africa is a maritime nation, 90% of half the GDP coming from maritime trade and activities. The DRC highlighted that cabinet has called for a strategy to address the maritime issue in 2011; and that the Maritime Security Strategy was presented in April 2011. Moreover, the DRC emphasised that maritime security is viewed seriously by government as threats expand and encroach on the Southern African Development Community (SADC) region. Piracy has expanded towards India and the East Coast of Africa and beyond; and the DRC has noted that the first incident which occurred in Mozambique resulted in the development of an SADC maritime strategy. According to the DRC, South Africa is currently the leading nation on the east coast.

On the topic of military veterans the DRC outlined that it lacks the mandate to deal with the latter, emphasising that in the future veterans would be skilled through their Defence Force experiences and should pursue procurement opportunities and become involved in remembrance parades. A veteran in South Africa is someone who did, but no longer does, serve the SANDF



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– and therefore the concept of veterans in the South African context is very broad, and has major implications for how military veterans are dealt with. The DRC acknowledged the importance of the role of the defence industrial base for the Eastern Cape and for development in the region, expressing certain concerns regarding illegal activity on the borderline (Lesotho) and further concern about lack of protection of the coastline on the DRC agenda.

The Defence Review (2012) has been highly successful in taking cognisance of the changing nature of the defence task. It started off from a completely fresh base, given that the two previous instalments of Defence policy were entirely outdated. However, some key points have emerged which have traction in the Eastern Cape.

EMERGING ISSUESA number of issues arise from the document, which are covered below.

a. National Development Plan (NDP) 2030The NDP represents a crucial step in the process of shaping a long term vision for South Africa. The NDP was published in November 2011, following the release of the Diagnosis Report, which highlights South Africa’s achievements and shortcomings since 1994. Government has endorsed the NDP as a blueprint for eliminating poverty, creating jobs and reducing inequality by growing an inclusive economy and enhancing the capacity of the State. The South Africa Defence review must therefore be guided by the NDP and take stock of identified issues:

• The emergence of fast-growing developing economies is reshaping international politics and economics;• Globalisation which has increased the complexity with which most countries must contend: financial risks, increased competition (placing downward pressure on the wages of labour) and growing social discontent; • Transitiontoalowcarboneconomyandtechnologicalchange; and• FocusonAfrica:stronggrowthonthecontinenthasopenedup opportunities for South African industries and several structural weaknesses must be overcome

b. Africa The Defence review reflects on the place which South Africa occupies on the African continent, as well as what the continent expects from South Africa. Given South Africa’s political and economic integration into the Africa Union (AU) and the Southern African Development Community (SADC), oil, gas and mineral ores extraction in Africa will, in the coming decade, constitute the most important economic opportunity that the continent has ever had. South Africa has the largest and most sophisticated economy in Africa (22% of total GDP1), but trade with the continent is far from reaching its full potential. As

1. IMF, 2011

South Africa military expenditure represented 1.2% of its GDP in 2009, down from 4.6 % and 2% in 1989 and 1995 respectively. The downward trend in military expenditure is likely to resultin a mismatch between policy commitment in Africa and the implementation thereof.

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Africa is at the centre of South Africa foreign policy, the Defence review recognises that South Africa’s national security strategy is inextricably linked to that of regional security.

c. Competition for resourcesThe challenge for Africa is to overcome many decades of resource extraction; and to harness instead an opportunity which will bring about better revenue-sharing companies and local communities, as well as better linkages and greater transparency regarding local industries. The potential for more resource discovery in Africa is immense, owing to years of neglect, political unrest and underinvestment. But with rising commodity prices this reluctance is being overcome, with prospecting generating a multitude of new discoveries. The global demand for energy is expected to increase by more than 50% by 20352 thus saving for a revolution in alternative energy. Fossil fuels will keep their appeal; and Africa will remain a major source of raw materials and minerals for foreign powers. Competition will have both a positive and negative impact on the continent.

d. Maritime industrySouth Africa’s main trading partners are far away in Asia, Europe and America. It is therefore natural that a large amount of South Africa’s trade is conducted by sea. South Africa’s marine interests include effective cooperation arrangements with neighbouring states and foreign powers as regards ensuring freedom of the sea and security of shipping, as well as the protection of the marine environment. South Africa’s coastlines stretch about 3 924 km with an exclusive economic zone of 1 553 000 km2, which could be stretched to 4 340 000 km2 should the continental shelf be extended. Recent years have seen a spike in maritime disputes about the control of fresh water, fisheries, sea routes, oil and other deposits.

e. The case for Coega and the Eastern CapeThe Eastern Cape Province is the second largest province by land size in South Africa: it covers 13.8% of South Africa’s total land area. The province is the third most populous in the country with 13.5% of South Africa’s total population. Large quantities of South African minerals are exported to many international destinations; but the shipping of these is mostly done by non-South African companies. Additionally, about a 1 000 foreign ships pass the Eastern Cape each year. South African shipyards and industry do not currently participate in the construction of larger commercial or military vessels. Currently the ship building industry is focusing mostly on smaller admin-craft, commercial fishing boats and recreational vessels such as tugs, utility craft, fishing craft, and yachts. The marine maintenance, refurbishment, and repairs sector mainly deals with opportunities on the back of cargo related traffic that may dock in South African ports, and when ships and rigs are refitted or repaired. The establishment of a Maritime services cluster built around the defence sector will diversify the Eastern Cape economy, creating many much-needed jobs.

2. IEA, 2011



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WAY FORWARD AND RECOMMENDATIONS

Space-based systems and IT tools, especially in cyberspace, will play a great, if not decisive role, in armed conflicts. In a more remote future, weapon systems that use different physical principles will be created. A case can be made for the creation of a technology park at Coega which would be at the forefront of research and the manufacture of avionics, electronic devices, IT and telecommunications – all related to cutting-edge technologies.

A key challenge in the implementation of the vision and future strategy and policy contained in the Defence Review, is to work more closely with other state agencies in regard to the improvement of the efficacy of the state bureaucracy – an issue highlighted by both the National Growth Plan and the National Development Plan. Internationally, new development and economic development theory and policy have seen a significantly increased emphasis on the institutions, actors and resources in the space between the state and the market. Local level partnerships between the state, business, and the third sector in productive regions internationally suggest greater flexibility, increased civic awareness, and the deliberate inculcation of the post-knowledge and creative economy structures and practices.

The Draft Defence Review considers a number of options for an expanded development role for the SANDF. While these are useful this is a strategy document, and more policy specificity is required. And associated with this requirement is a need to consider defence and development in more dynamic and synoptic ways. Also, given the overly modest percentage of the national budget allocated to Defence and the expanding set of national, regional and international concerns and obligations, there is no alternative but to think creatively. This means looking at new ventures on an inter-departmental and inter-agency basis, playing an increased ‘broker assembly’ and facilitation role, as well as taking cognisance of the more cost-effective aspects of international best practice in terms of economic and more socially-oriented development.

At national, sub-national and local levels there are now expanded opportunities for the DOD, SANDF and associated institutions. There is scope for significantly increased utilisation and leverage of the resources allocated to other government ministries in both inter-agency cooperation, as well as selective public-private partnerships. For instance, the mooted youth service programme and structures would involve a range of Ministries, in developing more comprehensive and viable applications, with the Defence share of the initiative being relatively modest. If the DOD and the SANDF are to contribute significantly to the development in South Africa, the enhancement of human capital should be central to its future interventions in the relevant fields. For example, given the state subsidy system of public universities, the SANDF could be


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looking at ways of collaborating in new advanced programme design for specialist training which would include SANDF personnel but which would also attract other students (including representatives from foreign military forces) and thus cheapen the costs of bespoke training. In South Africa, as elsewhere, this means the bar for employment of both the non-commissioned and commissioned ranks must be raised considerably. Such a shift in thinking will provide a compact but capable core of expertise for the South African state to draw on, as well as provide the private, public and third sectors with sought-after staff in the process of post-military employment. In the above cases the Eastern Cape could look to take more advantage of training, procurement and production possibilities, as well as looking at a small naval base either at the Port of Ngqura or in the Port Elizabeth harbour. Increased military bases and/or presence within the province would be advantageous.

Besides the SANDF dynamic, there are a range of under-explored opportunities for state owned defence sectors. Among the examples are the following:

• Developingasophisticatedpropertyandproperty development arm, possibly as a joint venture.• Greaterutilizationofour impressivetestingranges, training sites, and even surplus equipment for international usage. Using a partnership approach this could then be a revenue stream.• Hostingmulti-nationaldefencemanoeuvresandexerciseson a regular basis. • Possibly working with one or more of the coastal IDZs to explore opportunities for provisioning on a selective basis of foreign and international forces.

In all these aspects the Eastern Cape should look to provide a distinct policy response directed to national government.

CONCLUSION

REFERENCES

The new Defence Review (2012) successfully positions South Africa in the contemporary moment and is a welcome fresh stance for the country’s defence environment. There are shortcomings but these are outweighed by the major opportunities outlined above. Should the DOD take advantage of its new positioning in a creative and meaningful fashion, the opportunities could be maximised into regional local economic development. The spinoffs thereof would channel both into people and industry, thereby assisting with stabilisation and catalysing further security. The Defence Review (2012), like its predecessors, will require frequent re-examination and adjustment to fit with new and emergent trends, but for now it is a stronger and more reflective base than what has come before.

Batchelor, P. (1998.) “South Africa’s Arm Industry: Prospects for Conversion”. In Cock, J. and Mckenzie, P. (eds). From Defence to Development. David Philip Publishers: Cape Town, South Africa.



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Batchelor, P., Dunne, P., & Lamb, G. (1998.) “The Demand for Military Spending in South Africa”.

Batchelor, P. & Dunne, P. (1998.) “The Restructuring of South Africa’s Defence Industry” Centre for Conflict Resolution and Middlesex Business School. Leverhulme Trust.

Botha, D. (2003.) “South Africa’s Defence Industry: Charting a New Course?,” Institute for Security Studies, ISS Paper 78.

Cawthra, G. (1998.) “Guns or Butter? Growth, Development and Security”. . In Cock, J. and Mckenzie, P. (eds). From Defence to Development. David Philip Publishers: Cape Town, South Africa.

Cock, J. (1998.) “Introduction”. In Cock, J. and Mckenzie, P. (eds). From Defence to Development. David Philip Publishers: Cape Town, South Africa.

Defence Web (May, 2012.) “Defence budget inadequate: Sisulu”. Published on 5 May 2012. Accessed on 25 June 2012. Downloaded from: http://www.defenceweb.co.za/index.php?option=com_content&view=article&id=7780:defence-budget-inadequate-sisulu&catid=55:SANDF&Itemid=108

Department of Defence. (1996.) Defence in a Democracy: White Paper on National Defence for the Republic of South Africa. DoD: Pretoria.

Department of Defence. (1998.) Defence Review: White Paper on National Defence for the Republic of South Africa. DoD: Pretoria. Department of Defence. (2012). South African Defence Review: Consultative Draft. DoD: Pretoria.

Haines, R.J. (2012.) “The Complexities of Development: The South African National Industrial Participation Programme in Perspective,” Designing Public Procurement Policy in Developing Countries, Springer pp 111-139

Mills, G. (2011.) “An Option of Difficulties? A 21st Century South African Defence Review,” The Brenthurst Foundation Discussion Paper 2011/07.

Nathan, L. (1998.) “The 1996 Defence White Paper: An agenda for state demilitarisation”. In Cock, J. and Mckenzie, P. (eds). From Defence to Development. David Philip Publishers: Cape Town, South Africa.

Pieroni, L. (2009.) Military Expenditure and Economic Growth, University of Perugia

Vreÿ, Lt. Col. F. (2004.) “Paradigm Shifts, South African Defence Policy and the South African National Defence Force: From Here To Where?” Military Strategy, Scientia Militaria, South African Journal of Military Studies, 32 (1). Accessed from: http://scientiamilitaria.journals.ac.za; Downloaded on: 20 January 2012.


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The future use of the ocean’s potential is dependent on the commitment of each society to link up its future with the ocean environment. Many countries pursue this goal so as to occupy a ranking position in the process of integration with the World marine economy.

When evaluating the achievements of the marine policy of South Africa during the last 20 – 30 years, there is an increased interest as to what future possibilities are being created for our country by the rapidly progressing interdependence of world economy. In the light of this tendency it is evident that South Africa needs to integrate further with global economy by following the

THE ROLE OF SOUTH AFRICA

Prof. Vlad M. Kaczyñski (School of Marine Affairs and Jackson School of International Studies University of Washington, Seattle, WA)

THE FUTURE OF

SUSTAINABLE USE OF THE OCEANS:

INTRODUCTION

THE FUTURE OF SUSTAINABLE USE OF THE OCEANS: THE ROLE OF SOUTH AFRICA


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principles of sustainable ocean development: an environmentally harmonious use of marine resources starting from fisheries and marine culture to the extraction of minerals, production of energy and development of shipping and shipbuilding, concluding with marine tourism (1).

By adopting the sustainable path of marine economic development, South Africa could strengthen the long-term links of its national economy with the potential of the marine environment, thus bringing her closer to the vast resources of the world’s oceans. Such an orientation would also have a strong impact on the future marine policy of South Africa and other maritime countries, promoting a harmonious and environmentally-friendly use of the ocean’s resources. This idea allows for an evaluation of the manner in which new technologies and marine resources for their use as models of the commercial activity can engage with the environmental and economic conditions of the sustainable use of ocean resources (2).

This approach would help South Africa to meet its obligations, thus combining its privileges with the country’s growing responsibilities, in its role as a member of the international marine community.

NEW OCEAN OPPORTUNITIES AND CHALLENGES A convergence of environmental, economic, social and technical factors is attracting greater attention to the opportunities available with regards to the world’s oceans: in the areas of transportation, food production, energy, mineral extraction, biotechnology, human settlement in the coastal zones, tourism, recreation and scientific research. These factors and resulting opportunities include: 1.1. Growth of bioscienceThe twentieth century has been defined as that of scientific advances in physics and electronics. Advances in biology and life sciences will further define the XXI century. Synthetic biology will help us create new microorganisms in order to accomplish specific tasks such as cleaning toxic waste, producing bio-fuels, and healing our bodies. In the world of biology, genetic data is like gold; and the oceans contain the vast bulk of the earth’s genetic diversity. Biotechnology pioneer J. Craig Venter has conducted the most comprehensive survey of marine genetics to date (3). His and similar work represents an initial step towards the understanding of, and economic exploitation of the genetic treasury of the sea. 1.2. New sources of aquatic foodHuman activity is often blamed for global environmental change. If such activity should cease tomorrow, however, agricultural production would continue to warm the planet. Simply put,


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protein production through meat is highly inefficient: in fact, an estimated 800 million people could survive on the grains fed to livestock in the United States alone (4). Rising demands for animal protein in developing economies, as well as the need to reduce carbon emissions, are now on a collision course. One way to avoid this conflict is to develop new sources of protein from the most efficient means known today: fish farming, predicted to overtake global beef production by 2010 (5).

1.3. Transition from fossil fuel to renewable energyGrowing energy demand and declining reserves of oil and natural gas will force a massive transition to renewable energy sources in the coming decades. As a vast reserve of kinetic and thermal energy, the world’s oceans represent a huge untapped source of renewable energy.

1.4. Mineral resources of the sea bottom The oceans contain vast quantities of vital minerals. However, direct extraction of resources is limited today to salt, magnesium, placer gold, tin, titanium, diamonds, and fresh water. Constraints on these extractions are nearly always economic, but are also affected by ownership, transportation distances, and technological challenges (e.g., the depth of ocean basins). Increasing human populations and the exhaustion of economically-accessible terrestrial deposits, however, will undoubtedly lead to increased extraction from the depths of the world’s oceans.

1.5. Factors affecting the future of marine transportation Marine transportation, international sea trade and globalisation will follow the economic development resulting from the increasing consumption of products and services, mainly in the markets of industrialized countries. The future of marine transportation may be affected by economic crises, as well as by the necessity of ensuring the safety of communication lines; and being protected from dangers such as those of terrorism and piracy. Demographic changes and shifts in the evaluation of various commodities, services and consumption methods may well result in the de-materialization of social culture. The demand for transportation services will generate new environmental threats which will have to be removed by ship owners and international organizations, following the guidelines set by the sustainable marine economy (6).

1.6. Coastal urbanization Cities are growing at the fastest rate ever recorded in human history; and most cities are found along the world’s coastlines. Rural areas throughout the developing world are being depopulated as people flock to prosperous coastal cities. These urban centers contribute to the deterioration of the coastal ecosystems by landscape modification and pollution. Today, approximately 40% of cities with a population over 0, 5 mln people are located in the coastal zones (7).

1.7. Expanding marine tourism and recreationMarine tourism is the most dynamic area of human activity on the



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ocean; and has been developing even more rapidly during the last 25 years. The newest tendency is cruising tourism, now entering upon its most sustainable phase of development. In 2008, the contribution of the cruise industry to the American economy was US$ 40 bln. Approximately 9 million passengers boarded cruise ships in US ports. This constitutes about 70% of the tourism-related boarding’s in the world (8).

THE TWENTY-FIRST CENTURY RESPONSE1.1. Sustainable approach to ocean development Many enterprises and governments understand that healthy oceans lead to greater productivity, higher quality and sustainable long-term growth. This understanding stands in contrast to the ways in which companies and governments have treated oceans in the past. Instead of seeing oceans as teeming wildernesses to be exploited, the sustainable marine economy takes a ‘systems’ approach: it views oceans as being fertile gardens which must be carefully managed from one generation to the next. It considers the down-stream impacts of economic exploitation - both positive and negative - on the total system (10). Several factors shape this view:

a) The spillover of ‘green’ values and business practices from land-based economies;b) A scientific understanding of the fragility of the ocean ecosystems and the great value which ocean ecosystems provide; c) New tools for managing common resources: Examples include the regulation of marine protected areas and transferable fishing quotas.

The sustainable development approach is firmly rooted in the ecological health and resilience of marine ecosystems. Unlike conventional green strategies that seek to minimize or mitigate the negative impacts of industries on air, land, and water, new strategies aim for more. They aim to leave the environment better than they found it - through cleaner effluent streams, increased biodiversity, improved scientific data, etc. This “better than neutral” approach will be a challenge for existing firms in that it sets a new, high-level standard of performance.

Ecological economics will be a vital tool in moving ocean industries towards new standards of sustainability. This cross-disciplinary field is developing models and measurements for evaluating the services that ecosystems provide, thus providing a framework for defining what is and what is not a profitable business. Ecological economics builds the cost of environmental degradation into its markets. As more of these external costs are internalized as firm costs, Blue companies will be more economically viable.

1.2. New opportunities and challenges What are we likely to see as ocean space industry develops? Early evidence points to new physical structures, a new age of

Many enterprises and governments understand that healthy oceans lead to greater productivity, higher quality and sustainable long-term growth. This understanding stands in contrast to the ways in which companies and governments have treated oceans in the past.

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oceanography, a gradual influx of profit-seeking enterprises and an attempt to develop shared responsibility for the stewardship of ocean resources. A convergence of environmental, economic, social and technical factors is bringing greater attention to the opportunities available in the world’s oceans: in transportation, food production, energy, mineral extraction, biotechnology, human settlements in the coastal zones; tourism and recreation; and scientific research.

1.3. Emergence of the ocean space industryThe intersection of macro global trends (energy transition, the search for new sources of food and mineral resources, etc.), and new frameworks for ocean sustainability, is leading to the emergence of an ‘ocean space’ industry. Early indicators of such a future industry can be seen today in a growing network of firms and sectors that share sustainable economy characteristics.

There are several parallels between the early aerospace industry and the ocean space industry now developing. Aerospace emerged from a blurring of the boundary between aviation and space travel. Many of the technologies and applications found in one domain were found to be applicable in the other. Also, many of the customers and suppliers were the same. Aerospace benefited from materials, computing, communication, and other technologies developed by contractors for military use in extreme environments. The same is bound to happen as commercial firms seek opportunity in the world’s oceans. Ocean space, like aerospace, is challenged by the extreme nature of its environment. Corrosion, tides and powerful currents, biological infiltration, poor visibility, communication difficulties and severe weather present enormous challenges to reliable and efficient operations in marine settings.

1.4. Migration of enterprisesFinally, as the economic value of ocean space is more widely recognized, business enterprises will allocate more resources toward it—treating ocean space, in effect, as an adjacent market. Just as Boeing and Lockheed leveraged their aircraft design and manufacturing capabilities toward space vehicles, so are we likely to see ship construction firms developing expertise in offshore structures. As their undersea reserves dwindle, offshore oil drillers, who already have substantial ocean space operations, may direct some of their cash flow into ocean bio-fuel R&D and other oceanic ventures.

This natural migration will occur as companies seek to expand with their own value chains.

NEW DIRECTIONS OF THE WORLD OCEAN INDUSTRY

1.1. Oceanographic research The first age of oceanography began in the 1950s and 1960s, as the seas became a stage for Cold War submarine operations. Today,



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advances in undersea sensor networks, computer modeling, biological diagnostics, data archiving, and international collaboration are igniting a new age of oceanography. Cold War scientific institutions such as Scripps and Wood’s Hole are leveraging their deep knowledge and technical competencies to new research missions at sea. The Monterey Bay Aquarium Research Institute and other organizations are expanding our understanding of the vast undersea frontier (11).

1.2. Ocean-scale engineering and design.Skyscrapers, superhighways, dams, and power grids mark man’s industrial conquest of the land. Commercial jetliners, the Space Shuttle, satellites, and the International Space Station highlight man’s attempts to tame the aerospace frontier. In this century, a growing number of engineering and design projects are looking seaward. The massive coastal engineering of Dubai is a prime example, and MIT Sea Grant’s proposal for migratory fish farms points towards a grand scale of human activity in the world’s oceans. These will be the initial physical landmarks of the sustainable marine economy.

Major maritime countries in the world come to recognize the importance of development of marine and ocean industries for their future prosperity. They seek to secure a sustainable future by carefully managing and conserving marine resources, which are relatively abundant but finite. Table 1 summarizes key directions of the marine policy of several of the most important maritime nations, who have adopted principles of the sustainable (blue) economy.

Table 1. Marine policy directions adopted by major nations

COUNTRY MAJOR POLICY DIRECTIONS/MEASURES SOURCE:

USA Promotion of ocean education Economic growth and resource conservation along the coast Coastal and ocean water quality preservation Enhancement of the use and protection of ocean resources Advancement of ocean-related science and technology U.S. participation in international maritime policy

An Ocean Blueprint for the 21st Century (2004), U.S. Ocean Action Plan Implementation Update (2007)

JAPAN Development and utilization of ocean resourcesPreservation of ocean environmentDevelopment of exclusive economic zone (EEZ)Securing shipping transportationEnsuring marine securityCarrying out ocean-related R&D and survey Development of marine and ocean industriesIntegrated management of coastal area Conservation of remote islandsEnhancement of international cooperationEnhancement of international cooperationMaritime education

Japan’s Ocean Master Plan (2008)

CANADA International leadership, sovereignty and security Integrated ocean management for sustainable development Health of the oceans Ocean science and technology development

Ocean’s Action Plan (2005), Technology Roadmap Special Report: Thinking beyond our shorelines (2005)

OCEAN POLICIES OF MAJOR MARITIME COUNTRIES


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1.1. Integration with global maritime economy South Africa is facing the important challenges of a rapid globalization, as well as changes resulting from the current ocean policies of a number of significant participators in maritime activities, including the United States, the European Union, China, Japan, Russia and several other maritime nations. The international maritime interests of this group of countries must, therefore, be considered not only in the regional (Pacific Rim) perspectives, but also considering global oceanic opportunities. Similarly, as it occurred during the period of joining the OECD and Asian clubs, and the opening of South Africa to the global ocean will require intensive cooperation between the Government, national private sector, and with the Pacific neighbors.

Additional challenges are obligations resulting from Korea’s membership in international organizations, other European organizations, and trans Pacific partnership with the United States. The latter is particularly important as regards securing stability and uninterrupted trade, and strengthening economic relations with other maritime countries. South Africa is also to play a more active role in joint actions against threats of international terrorism and militant radicalism.

1.2. Access to overseas resources and national security interestsAccess to strategic resources, especially energy, including off-shore resources, might affect the national security of Korea. This depends, not only on the external, but also on internal forces, even though their interplay is frequently blurred by the influence of globalization and economic integration between individual states. These factors are not limited by geographic barriers or politico/economic systems. In such an interrelated system, possibilities and even risks have a global character (15).

For example, for Korea, and for many other nations, one of the most important foreign economic policy goals is a creation of

COUNTRY MAJOR POLICY DIRECTIONS/MEASURES SOURCE:

CHINA Enhancement of people’s awareness of the importance of oceans Securing ocean related rights Conservation of ocean ecosystems Development of ocean resources Integrated governance of oceans

11th 5-Year Plan (2006-2010) Report on Marine and Ocean Industries Development in China (2006)

SOUTH AFRICA

Creation of a clean/secure ocean environment Promotion of global business and infrastructures for ocean explorations Protection of the marine environment Establishment of Northeast Asia shipping/logistics hub Sustainable development and construction of fishery industry infrastructures Securing stable supplies of fishery products Development of oceanographic research and extraction of the marine resources Training of the marine specialists

Ministry of Maritime Affairs and Fisheries, Master Plan of Marine and Ocean Policy, 2004 Policy direction of Marine and Ocean Technology, Development and Investment www.mltm.go.kr, April, 17, 2009

Source: (12)

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favorable conditions of access to the energy resources localized in the economic zones of developing countries. The growing demand for oil and gas in Asia, more and more frequently coming from deposits located in the continental shelves, is used by energy exporters in the Near East as a tool to develop political pressures on the consumption markets. These pressures, with increasing frequency, are replacing military force in the disposition of states with available energy resources. Tensions produced by temporary limitations of gas supplies to some importing countries indicate the uncertainty of the energy market and the strong influence of politics on national economies. It is, therefore, necessary for South Africa to promote overseas investment and partnerships to secure access to the natural resources of the ocean for our country.

Besides undeniable benefits, integration with the world economy brings South Africa the risk of economic crisis, and a destabilization of the financial markets. Climate changes have social and political consequences while competition to gain access to the ocean resources is increasingly the cause of international competition and conflicts (16). Intensification of the debate on protection of the natural environment and the future of energy resources of the Arctic Ocean are clear examples of growing tensions between coastal states adjacent to this Ocean, and non-coastal countries interested in the energy extracted from the ocean’s sub-soil and coastal regions of the Arctic (17).

1.3. Taking advantage of Korea’s maritime capabilitiesDespite a long tradition of growth, existing human resources, available infrastructures, and sizable maritime experience gained during the last few decades, South Africa does not fully participate in the economic integration of the world maritime economy. Due to growing competition, any delays in dynamic international ocean activity on the part of South Africa might have a negative effect on positive impacts of globalization. This imperative has been exacerbated by the sub-optimal use of the cadre of specialists and marine managers educated by national universities during the last twenty years. South Africa has developed distant-water fisheries, shipbuilding and marine transportation capabilities. These sectors occupy an important position in the national and regional marine economy, fueling Korean aspirations to become an active member of the maritime nations of the world. The production potential of Korean shipyards is significantly higher than that of many other countries. These shipyards could aspire to the production of oil and gas platforms and auxiliary ships for off-shore energy extraction; as well as the building of underwater constructions used to extract minerals from the bottom of the sea. Other nations such as the USA, Norway, China, Japan and other West European countries have invested in and undertaken various initiatives to increase their capabilities as regards exploiting ocean and coastal resources. The principles of sustainable marine economy that could be adopted by South Africa might have a powerful impact on the country’s overall economy, thus enhancing its oceanic aspirations.

The intersection of macro global trends (energy transition, the search for new sources of food and mineral resources, etc.), and new frameworks for ocean sustainability, is leading to the emergence of an ‘ocean space’ industry.

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During the last few decades, South Africa has undertaken many initiatives in order to modernize and expand the maritime capabilities of its member-states. The education of young cadres is considered to be one of the most important success stories of the effort to occupy an important position in a rapidly globalizing marine economy. Such integration of new technologies, as well as a growing demand for natural resources, (including energy from the sea), open up for South Africa new possibilities and challenges. Successful attainment of international marine policy objectives is dependent on close cooperation with other maritime nations and on adherence to the principles of building sustainable marine economy.

We are witnessing the rapid creation of oceanic industry in the World; and our knowledge of the ecosystems and environmental change is constantly growing. This new strategy relies on an application of innovations in exploitation of natural resources from the marine environment, including production of energy and mineral resources, as well as in securing stable sources of protein. The introduction of a sustainable and environmentally friendly economy is facilitated by the experience of many industrialized countries gained in land-related activities (green growth). Such countries as the United States, Japan and Norway develop their maritime potential in order to secure supplies of energy resources: marine minerals, fish protein, and the increasing efficiency of their shipping and scientific research capabilities.

Access to these resources could have a powerful impact on national security. South Africa has a good opportunity of joining the leading maritime nations of the world by using their specialists, experience and also its own maritime potential. South Africa needs to increase its efforts to gain access to various marine opportunities overseas, with special focus on the strategically important resources in the coastal zones of the developing states. This initiative is to be strengthened by growing aid programs and cooperative arrangements with partners in Africa, Latin America and South East Asia. South Africa could also continue to play an active role by taking advantage of the resource potential and shipping opportunities opened up by the effects of the gradual but inevitable warming of the Arctic region.

Today South Africa faces an important decision as regards directing its maritime interests to the deep waters of the global ocean in order to take advantage of the vast possibilities it offers to those who appreciate its riches, thus taking advantage of its position as a powerful integrator of national economies with expanding international markets.

1. Third International Symposium on “Core Agenda for International Expo 2012 Yeosu”, Island. International Expo in (2012.) - “The Living Oceans and Coasts: Diversity of Resources

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and Sustainable Activities.” November 19, 2009, Jeju. Korean Ministry of Land, Transport and Maritime Affairs, Presidential Committee on Green Growth, the Organizing Committee for EXPO 2012 Yeosu, Korea, Jeju Special Self-Governing Province, and Jeju National University.

2. Joroff, M. (2009.) The Blue Economy: Sustainable industrialization of the oceans. Proceedings, International Symposium on Blue Economy Initiative for Green Growth, May 7, Massachussets Institute of Technology and Korean Maritime Institute, Seoul, Korea, pp.173 -181.

3. Shreeve, J. (2004.) Craig Venter’s Epic Voyage to Redefine the Origin of the Species. August. [http://www.wired.com/wired/archive/12.08/venter.html]

4. Pimentel, D. (1997.) US could feed 800 million people with grain that livestock eat, College of Agriculture and Life Sciences, Cornell University, Cornell News Service, Press Release, August, 7. http://www.news.cornell.edu/releases/aug97/livestock.hrs.html

5 Brown, L.R. (2000.) Fish Farming May Soon Overtake Cattle Ranching As a Food Source, Plan B Updates, Earth Policy Institute, Washington, D.C. October 03 http://www.earthpolicy.org/Alerts/Alert9.htm

6. Corbett, J. J. and Winebrake, J. (2008.) The Impacts of Globalization on International Maritime Transport Activity: Past Trends and Future Perspectives, OECD/ITF Global Forum on Transport and Environment, November 10-12, Guadalahara, Mexico.

7. The State of African Cities. (2008.) A framework for addressing urban challenges in Africa, UN Habitat Program, United Nations Human Settlements Programme, 2008, Nairobi, Kenia.

8. The Contribution of the North American Cruise Industry to the U.S. Economy in 2008. (June, 2009.) Prepared for: Cruise Lines International Association by Business Research & Economic Advisors.

9. The Ocean’s Role in Global Change: Progress of Major Research Programs (1994.) Ocean Studies Board Commission on Geosciences, Environment and Resources, National Research Council. National Academy Press. Washington, D.C.

10. There are many examples of negative impacts human activities hale on the natural environment. For example, pollution of the marine waters, chemical threats caused by the aquaculture, or agricultural pollution brought to the sea by rivers from fields enriched with artificial fertilizers used o produce corn needed to produce ethanol. These contaminants are introduced to the environment thousand of miles away in the hinterland but in the final analysis they reach the rivers and are brought to the seas causing massive destruction of marine fauna and flora.

South Africa needs to increase its efforts to gain access to various marine opportunities overseas, with special focus on the strategically important resources in the coastal zones of the developing states.

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11. Joroff. (2009.) - Ibidem

12. Jung, B. (2009.) Blue Economy as a new Growth Strategy in Korea, Proceedings, International Symposium on Blue Economy Initiative for Green Growth, May 7, Korean Maritime Institute, Seoul, Korea, pp. 103 -121.

13. Toward the future European marine Policy: European Visio of oceans and seas. Green book. (2006.) 275 final version presented by the Commission. Commission of the European Communities, Brussels, July 6th, 2006.

14. Kaczynski V. M.,. Fluharty, D.L. (2002.) “European policies in West Africa: Who benefits from fisheries agreements?” Marine Policy Journal, No. 26 (2002), pp. 75-93.

15. Kaczynski, V.M. (2002.) US Ocean Policy Toward Russia, Jackson School of International Studies - REECAS News Letter, University of Washington, Seattle, Spring.

16. The Defense Strategy of the Republic of Poland: Sector Strategy to the National Security of Poland, Ministry of Defense, Warsaw. (2009.)

17. Kaczynski, V., Brosnan I., Leschine, T. (2009.) The Future of the Arctic: Major issues and national policies of the five coastal Arctic nations regarding the development and protection of the Arctic. Study for the Korean Maritime Institute, School of Marine Affairs, University of Washington, Seattle, November

In a world in which the labour market fails to absorb thousands of people within the working age population and high levels of poverty and inequality exist, this paper questions the logic of wage labour and argues for less dependence on the system of mass production. Our objective is to liberate the minds of millions of South Africans as well as the rest of the world from the seemingly dominant ideology of the (false) supremacy of the system of exchange in fulfilling human wants. In other words, the fact that human beings nowadays depend largely on mass producers for almost all their basic wants is extremely strange.

We note that the phenomenon of people consuming what they do not produce directly is enabled by monetary exchange,

THE (IL)LOGIC OF

A CASE FOR SUBSISTENCE PRODUCTION IN FULFILLING BASIC WANTS

WAGELABOUR

Ongama Mtimka (Ubuntu Education Fund) Lonwabo Mava Dlepu (Ubuntu Education Fund)

THE (IL)LOGIC OF WAGE LABOUR. A CASE FOR SUBSISTENCE PRODUCTION IN FULFILLING BASIC WANTS


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which in turn is enabled by the concept of wage labour. Basing our observations on two fundamental facts, we question this system according to two fundamental facts. The first of these is that families used to directly produce everything they needed for survival; and the second, which is related to the first, is that wage labour has not always formed a central part of the economy in the form we have come to know, even to the extent of the term “unemployment” being directly linked to poverty.

In order to fully appreciate the context of our critique of humanity’s enormous dependence on mass production and wage labour, we need to consider the animal kingdom. Animals hunt in order to eat, making strenuous efforts to search for grazing land: they dig holes to have shelter, and drink water directly from dams and rivers. It is unconceivable that lions, for example, should be employed by others as ‘babysitters’; and that farm workers who earn a wage and then buy their daily meals from a butchery owned by another lion who hunts en masse, slaughters and then sells to the “market”. Providing for basic needs amongst our counterparts in the jungle instinctively involves hard direct work.

Human economy as we have come to know it, on the other hand, is the exact opposite of jungle ‘economy’. We live in a world where people either have money and are able to consume what they do not produce for themselves; or do not have money and are helplessly poor and hungry. The question that arises is whether it is natural or right that the power of exchange, money, should be what determines whether or not people are able to have clothing, shelter, and a meal at least three times a day.

It seems that money in our economy has indeed risen to a position of being an end in itself rather than a means to an end. If this were not so, the efforts of modern day human beings would not be directed first at getting money and then fulfilling their wants. Rather, our efforts would be directed largely at fulfilling those wants directly as in pre-capitalist or preindustrial societies. It is only through employment or commercial enterprises that human beings are able to obtain money. When they have money, they are empowered to buy basic necessities and are at times able to finance luxuries. However, if human beings are not employed and are not involved in any business activity, they are unable to obtain money, and, therefore, cannot access food, shelter and clothing, unless they benefit from some charity or social welfare programme.

This paper traces the emergence of the system of wage labour in South Africa, proposing that we refocus our energy, since our country needs its people to produce as many products and services as possible in order to address some of the pressing challenges of our time directly. It is argued here that sustainable living and, paradoxically, entrepreneurship will flourish when we refocus our attention on fulfilling such wants directly, rather than through addressing a more all-inclusive approach to money first, and only later the fulfilment of needs.


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One of the distinguishing factors of the system of subsistence farming is the strong sense of solidarity both within the family and at community level, as well as a commitment to collective welfare and prosperity.

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It is possible to replace expenditure on foodstuffs and other items significantly; and in so doing creating enhanced potential to trade. As more and more families produce food directly, more will be available: not only for subsistence, but also for trade - thus allowing people to increase their productive capacity. This then calls for greater focus on the productive capabilities of families as has been experienced on farms, industries and nations.

The following section discusses the emergence of wage labour.

HOW AFRICAN ECONOMY HAS BEEN TRANSFORMEDPrior to the discovery of gold, the concept of regular wage labour “was virtually unknown to [South Africa’s] black people” (Leistner and Breytenbach, 1975:5). South Africa was a purely agrarian economy until the effects of the discovery of diamonds in 1867 and gold later on, both of which resulted in large-scale mining and the construction of road and rail infrastructures among other things (Ibid.). This resulted in directly producing what families needed in order to fulfil their wants, and may be seen as a distinguishing characteristic of precolonial African economy. This was so much the case that the emerging capitalist class in industries and mines in South Africa experienced great difficulty in recruiting African labourers

One of the distinguishing factors of the system of subsistence farming is the strong sense of solidarity both within the family and at community level, as well as a commitment to collective welfare and prosperity. De Wet and McAllister (1986:8 citing Wilson at al 1952, p69) state that people borrowed each others’ farming equipment and would repay with some alternative form of assistance. Furthermore they state that there although there was little hiring of labour for cash, people were rewarded with what is called a “work-party” [ilima in isiXhosa] where food and beer were served to workers.

If anything, this underscores how, when the concept of money had not permeated all spheres of the subsistence economy, there was a greater sense of collective responsibility to communal rather than individual progress. This sense of social solidarity extended, as it still does in the rural areas, to key aspects of social life, such as families assisting one another with work leading up to certain ceremonies like circumcision parties and burial services. The issue of the shortage of labour for commercial agriculture is widely acknowledged because of subsistence farming; and because of the “lure of adventure and high wages” in the mines later on, as well (1986:13). The shortage of labour for large scale commercial farmers and the fact that Africans had the capacity to produce better and cheaper foods crystallises the hegemony of the system of subsistence and its commercial viability and stability. Keegan (1986:10) reports that Africans who were relatively independent of the burgeoning settler economy did not need to



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send out labourers in huge numbers as a means of sustaining their “homestead economy”. He argues that the Basotho monarchy, for example, strategically sent labour to mines and industries “to gain livestock and guns” rather than to “earn a living”, as it were.

“ … it was under severe [the] circumstances of severe labour shortage at a time of economic boom that schemes of federation between white ruled colonies and republics and pressures for imperial intervention became evident. It was also under these circumstances that rigorous efforts were made, militarily and otherwise, to subvert independent African societies throughout southern Africa in the interests of the burgeoning settler economy”.

Therefore, the process of change from subsistence farming to a system of wage labour occurred more as a result of dispossession and repressive government policies than through free will. Indeed, the beaconing civilisation underscored by the demand for new products like clothing and weaponry, must have played a role in luring Africans to work as wage labour. However the greater effect on the systemic must at first have come from the repressive laws. Terreblanche (2002:6) crystalises the experience of African workers in South Africa in his reference to “unfree labour”. “The histories of power domination (political, economic, and ideological), and land deprivation are also central to an understanding of the unfolding drama of unfree black labour in over the past 350 years.” He further states that because black labour was scarcer – and therefore potentially more valuable – than land, there was a continuing tendency to force black labourers into slavery, serfdom and other repressed forms of labour.

Therefore, although entrepreneurialism - and therefore also commerce and trade - Africans were tempted to interact earlier with the merchants and colonists in towns they were developing, including East London, Grahamstown, and King William’s Town, among others in the Eastern Cape (Marks and Atmore 1980:24); as well as the injection of money into the African economy, thus playing a destructive role in the long run on the productive capabilities of small-scale farmers. This is particularly true when considering the fact that a lesser percentage of people were now working the land so as to provide for their needs, as opposed to the situation in the olden days.

It is therefore clear that the move from a subsistence economy to one based on wage labour was not necessarily a positive development for African economy. One of the reasons for this is that over time the migration of males, who might have been heads of households, dislocated their efforts from their direct responsibilities of subsistence to that of wage labour. Because males played a central role in providing for the needs of their families, small scale agriculture and other trades such as home building was negatively affected because they were coerced into working as wage labourers. If this is the case then, it calls for a degree of rejection of the superiority of wage labour as a form of fulfilling wants, even more so at a time when the economy fails to absorb all into the labour market.


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Small scale agriculture in South Africa and worldwide suffered under the ideology of mass production with people arguing that large farms were more efficient and better placed to address supply shortages than small farms (Binswanger, 1996:19-20). However the notion of the superiority of large scale commercial agriculture over small holder farming is a myth that has still to be proved empirically (Ibid). There are many competitive advantages which small holders have over large-scale ones, the major advantage being the use of family labour, which reduces the labour burden. Because small scale farming is more labour intensive relative to its commercial counterparts, it has a greater potential to create employment and self-employment (Binswanger, 1996:19-2).

It should be noted that as far back as the early 1980’s, observations regarding the unacceptable failure of food production in Africa had already become part of an academic debate (Lofchie in Commins et al, 1986:79). It had become apparent that an increasing number of African countries could not feed themselves, thus resulting in a surge in imports from the 1970’s to meet an ever growing demand for food. This may be said to have resulted from the process of dispossession wherein large-scale commercial farmers worked with governments to suppress small-scale farming by Africans in order to compel them to work as wage labour.

However, while Africa had an increasing challenge of providing enough food for its population, China proved to be successful in providing food for over 800 million in the 1970’s, with just 8% of the world’s arable land (Aziz, 1978:xviii). Seemingly, rather than high dependence on the system of mass production, the Chinese model of economic growth which actually enabled it to address mass poverty was, amongst other things, emphasising self-reliance. The highly stratified system of land ownership characterised by feudal capitalist relations was done away with after the rise of Mao and the formation of the People’s Republic of China (Aziz, 1978:9-10). This resulted in land being redistributed to poor peasants; and to the landless as well as previous owners who were willing to assume new positions as workers of the land rather than passive earners of rents and profits from exploited labour. Although this paper does not detail the entire process of land reform and agrarian reform in China, it is important to note that the Chinese embraced and rewarded a system of hard labour wherein groups of families collaborated in increasing the productivity of their land whilst allocating benefits mainly on the basis of work done than mere membership.

The story of the rise of agriculture in Indonesia also provides valuable lessons for South Africa in terms of the subject matter of this paper. According to Booth (1988:2), Indonesia managed to use the windfall gains of petro-dollars to improve the infrastructure serving small-holder agriculture, unlike other oil rich countries

A CASE FOR STATE INTERVENTION IN SMALL SCALE AGRICULTURE



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which neglected industrial agriculture for industries and construction after the discovery of oil. The support entailed the development and dissemination of new seed varieties, to expanding extension services and to subsidising inputs such as fertiliser. Such interventions ensured that small holder agriculture continued to play a major role in the growth of production in the sector, ensuring greater levels of prosperity for the nation even as its population grew over time.

As calls for greater land reform measures increase in South Africa, many people continue to point to Zimbabwe as an example of what may happen when the process goes wrong. Even more so considering that only a small percentage of South African Land is arable, about 12% (Du Toit 2004: vi). In his book The Great South African Land Scandal, Phillip Du Toit chronicles cases of the failure of land restitution in South Africa. He decries what he sees as a senseless process of land reform after which beneficiaries ran the farms aground because of lack of real capacity to farm, mismanagement and money squandering, lack of government support and unwillingness to cooperate (Ibid.). Again South Africa could learn greatly from the Chinese model of land reform. The Chinese model was not merely a process of changing ownership from colonisers or capitalists to others: it fundamentally changed the structure of land ownership in the country with strong emphasis on changing the class aspects of ownership in China. Furthermore, new emphasis was laid on a philosophy of collectivisation in which land was distributed among many people who would work the land rather than a few landlords or feudal lords who would seek to earn rents and profits without hard labour. The Chinese also conducted significant trainings and capacity building and created the enabling collective structures to maximise collective efforts and benefits.

Over and above concerns about access to land, any proposal for an agrarian revolution has to grapple with the challenges that there is little arable land in South Africa, and a low average rainfall which is half the world standard with about “65% of the country having an annual rainfall of 500mm – usually regarded as the absolute minimum for successful dry-land farming (Du Toit, 2004:259). Even in this instance, China and Indonesia enjoyed more favourable conditions in terms of the availability of arable land and the fact that they have greater populations than South Africa. This means there is room for creativity in terms of farming technologies and irrigation systems, because while the country may be water stressed, there are rivers and dams which avail opportunities for irrigation. Another question put to Du Toit, 2004:259) is whether there will be social buy-in by the youth to become farmers. However, with the increase in unemployment and the lack of skills among youth, it does seem possible that with effective engagement, young people may be convinced to turn into agriculture.

WHAT ARE THE POSSIBILITIES OR CONTRADICTIONS OF THIS PROCESS?


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Based on the fact that large scale commercial agriculture, mining and industrialisation interrupted further development of small holder agriculture in South Africa, an opportunity exists for the country to rejuvenate this sector in order to address the challenges of unemployment and poverty. The experiences of other countries show that it is possible to address the challenges we have as a country.

Below is a practical demonstration of the process involved in regaining lost ground in small holder agricultural production.

Family life well lived: An abridged revival strategy for small scale food production.

1. Community education and buy-in process. CHALLENGE: Hunger, poverty and moral degeneration. • Togetheridentifyanddefinethechallenge. • Togetheranalysethescopeofthechallenge. • Identifythedirectandindirecteffects. • Raiseawarenessoftheneedforchange. • Secureanagreementintheformofcommunitybuy-in. • Brainstormpossiblesolution/s.

POSSIBLE SOLUTION/S: Introduction of possible basic options. • Option1:Smallscalefarming–familylevel. • Option2:Smallscalefarming–communitylevel.

DYNAMICS DETERMINING SUCCESS IN FARMING. • The person to be involved: [passion, vision, decision making, problem solving, commitment/dedication, perseverance, willingness to learn and to be trained.] • Theidea:[feasibilitystudy.] • The model: [suitability, affordable, sustainable and harmless to people & environment.] • Theplan:[detailedstepbysteporactivity-actionplan.] • Theresponsibilityandtimeframeprofile. • Theimplementationstrategyandworkplans. • Monitoringandevaluation. • Correctivemeasures. • Teameffort:[unityandcommongoals.] • Discipline:[productionandmanagement.] • Systemsandprotocol. • Lowcostofproduction. • Highinvestmentreturn. • Production distribution: [household consumption and sales for income generation]

THE BENEFITS OF A WELL-DESIGNED FARMING MODEL. • Home based food security: [safe, accessible and nutritious food.] • Goodhealth:[balancediet,lessstress&depressionand exercise during working on farming activities.] • Financialgains:[escapedebt,moneysavingsandincome generation on sales.] • Psychologicaleffect:[mind-setchange–hope,dreams/ visions, future planning.]



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Small scale agriculture in South Africa and worldwide suffered under the ideology of mass production with people arguing that large farms were more efficient and better placed to address supply shortages than small farms.

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• Academicprogress/educationalgrowthtogreater careers. • Capacity-buildingduetoskilldevelopment.

SUPPORTING FACTORS. • Internal[On-goingholistictechnicalsupport–production plan, procurement, production activities, monitoring, control, administration, management, marketing] • External[Spiritual,political,social,economicand personal/self-development.]

2. Specialized training as regards the following: • Growingcrops:vegetables,maizeandherbs. • Keepinganimals:game,livestock,pigsandpoultry. • Small-scalefarmer’smarket. • Basicbusinessskills. • Cash-flowmanagement. • Small-scalefarmingmodel. • Dynamicsinvolvedinturningfarmingintobusiness.

3. Small-scale farming model – family level. • Afamilysizeofsix:Father,motherandfourchildren. • Afamilyofthissizeneedsabout225squaremeters of land: to produce for household consumption and income generation through sales.

Healthy bodies require the following vegetable types: • Bulbvegetable–onion; • Fruitvegetable–peppers,tomato,squash,avocados, cucumbers and egg-plant; • Inflorescentvegetable–broccoli,cauliflower; • Leafvegetable–Brusselssprouts,cabbage,lettuceand spinach; • Rootvegetable–Beetroot,carrot,celery; • Stalkvegetable–Asparagus,celery,sweetcorn; • Tubervegetable–Potato,sweetpotato;

First harvesting: start at 4 weeks after transplanting spinach (8 weeks) – beetroot, others at 12 weeks.

Production takes place: 4 times a year [Jan – Mar, April – Jun, Jul – Sep and Oct – Dec.]

Potential challenges/blockages: Infra-structure such as water supply, training method and outbreak of pests & disease due to lack of technical support.

Costing of infra-structure and production inputs: • Landsize–15mx15m=225squaremeters. • Fencingcost–R3000[material&labour] • Gardentools–Spade,fork,rake,pickaxe,hoe,hosepipe, trans-planters and wheel barrow: costing - R850. • Fertilizers–R1600. • Seeds–R250. • Seedlings–R350.


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We believe that the only development model that will work in South Africa is one that emphasises micro-individual effort at the core, thus following the example of Mao’s China as well as community, government, and private sector collaboration to ensure greater levels of success.

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Total initial investment: R6 050.Investment on returns: R5 000/quarter X 4 and R20 000/ per year.Potential monthly income of: R1666.67/month from home-grown vegetable crops on a 225 square meters piece of land.

As can be seen in the above scenario, with minimal intervention, we should be able to create thriving lives for many South Africans: even more so given the fact that the above scenario refers to potential vegetable income only. One could also keep livestock, pigs and poultry. When adding up all the potential income from the above-mentioned enterprises, these could generate a substantial amount of income, thus minimising poverty in our communities.

We believe that the only development model that will work in South Africa is one that emphasises micro-individual effort at the core, thus following the example of Mao’s China as well as community, government, and private sector collaboration to ensure greater levels of success. For South Africa to move to such a position, it is important that the education system be realigned accordingly. In this regard we propose an education system built directly around the subject of fulfilling human wants. This means that all individuals should have a basic understanding of food production, building and clothing and all related processes as they unfold in domestic and industrial sectors. This would enable the country to address its skills challenges and produce people that can be self-reliant when they cannot find jobs.

Binswanger in Van Zyl, J., Kirsten, J. and Binswanger, H.P. (editors). (1996.) Agricultural Land Reform in South Africa: Policies, markets and mechanisms. Cape Town: Oxford University Press

Booth, A. (1988.) Agricultural Development in Indonesia. Sydney: Asian Studies Association of Australia in Association with Allen and Unwin.

De Wet, C. J. and McAllister, P.A. (1983.) Rural Communities in Transition: A Study of the socio economic and agricultural implications and Agricultural betterment and development. Grahamstown: Rhodes University, Institute of Social and Economic Research

Keegan, J.T. (1986.) Rural Transformations in Industrialising South Africa: The Southern Highveld to 1914. Braamfontein: Ravan Press Lofchie, M.F. in Commins, Sephen K., Lofchie, Michael F. and Payne, Rhys. (1986.) Africa’s Economic Crisis: An Overview. Africa’s Agricultural Crisis: the Roots of Famine. Pp 3-18. Leistner, G.M.E and Breytenbach, W.J. (1975.) The Black Worker of South Africa. Pretoria: Africa Institute

Marks, S. and Atmore, A. (1980.) Economy and Society in Pre-Industrial South Africa. New York: Longman



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CONCLUSION

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South Africa’s draft Special Economic Zones (SEZ) Bill is irrevocably on the table and the debate around both its shortcomings and improvements is intensifying in some quarters and growing fainter in others.

The Coega Development Corporation (CDC) – operator of the country’s most advanced Industrial Development Zone (IDZ) – watches with a mix of optimism and trepidation as one of the leading IDZs in the country.

Debating the promises and pitfalls of a new policy environment requires an acknowledgement that, central to the complex planning processes, and long-term implementation of spatial or regional development initiatives, there must be a clear, uncomplicated

FROM IDZ TO SEZ AND THE CASE OF COEGANomzamo Kolo (Coega Development Corporation) Amy Shelver (Nelson Mandela Metropolitan University/Meropa Communication)

FINDING A WAY IN A

CHANGING LEGISLATIVE ENVIRONMENT:

FINDING A WAY IN A CHANGING LEGISLATIVE ENVIRONMENT: FROM IDZ TO SEZ AND THE CASE OF COEGA


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desire to attain high levels of socio-economic and industrial development.

Achieving this is no easy feat and, particularly in South Africa, requires both an ideological and planning mind-shift that embraces long-term vision, preparation and execution. In 1999 when the Department of Trade and Industry (DTI) took the decision to create specialised IDZs (the Coega IDZ was the first to be promulgated) it was exactly this type of strategic thinking that lay at the core of the initiative.

From the outset the CDC was told to look 50-75 years into the future, effectively, planning the new industrial heartland of the Nelson Mandela Bay Municipality (NMBM), and arguably the Eastern Cape and South Africa, for the 21st and 22nd centuries.

This approach is similar to the method former British Prime Minister Margaret Thatcher employed when she designated the special development zone to redevelop the old London docklands in the core of the City of London in the early 1970s. It was recognised then that it would take decades to achieve the ultimate plan. 2011 saw the completion of the final major development of the original London Docklands Development Corporation master plan – 40 years on – and is a testament to both vision and dogged implementation.

The Coega IDZ is only 14 years into that initial 50-75 year future; and the impact of sustained careful planning is beginning to yield the fruits of investment, against all odds, and in spite of policy limitations.

Given its successes and the strategies used to achieve them, it is critical to analyse how the proposed new legislation will impact existing IDZs.

The main question is whether the new legislation – which is geared to deal with the shortcomings of the current IDZ policy – will derail the progress made by existing IDZs; or if there is real room for expanding the impact of spatial development initiatives by incorporating existing IDZs within the new SEZ policy (which is the current intention).

There has been debate on this issue in both policy circles and at roundtable discussions, like the one hosted by the Centre for Development & Enterprise (CDE) in November 2011, which resulted in an interesting report published in 2012.

Government’s decision to review the legislation around IDZs stems from a perceived failure by IDZs to attract investment and create jobs. But, we argue, the criticism of the IDZs, particularly Coega, is unjustified.

Coega has created 3 735 operational direct jobs and over 40 000 construction jobs – a direct result of it successfully attracting investments, both foreign and domestic – over the last 13 years. In 2011/12 alone Coega secured a R600-million investment with First Automobile Works – China’s largest vehicle manufacturer – and

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R400-million through AgniSteels, an Indian steel company that has partnered with a local consortium.The Coega IDZ has 22 operating investors in six industry sectors. Recently, the fourth original equipment manufacturer (OEM) vehicle assembler in the province announced it would be located at Coega. Ferromanganese smelting at the IDZ is fast becoming a reality, and the Eastern Cape’s first ever steelworks, pioneered by AgniSteels, is nearing completion in the Coega ferrous metals cluster.

IDZs are long-term investments in the future of our country – and the SEZ legislation comes just as Coega is defining its success through actual, sustained investment and growing investor confidence. This is the outcome of years of planning, courting investors, negotiation, and compliance with detailed legislation around the environment, energy and the economy – all within the context of an unstable global economic setting. Failure to acknowledge the fact that this planning is beginning to bear fruit is to ignore the very process of long-term design. IDZs were not born overnight – and neither will SEZs have a short gestation period.

There is a feeling in government and other circles that IDZs have not contributed significantly to economic growth – but this does not mean that the IDZ model is wrong; but rather that support for it has been inadequate, particularly as regards regulation and incentives – an issue which both the CDE and the DTI concede in both recent reports and in commentary on its own legislation.

The now overwhelming needs around immediate service delivery, and the even more critical need for sustainable jobs in South Africa, have taken the focus off long-term planning. The result is the reconceptualization of a policy which didn’t really commit to industrial development in the first place.

Will the revised policy work to achieve employment creation and accelerated industrial development? Well, there are a number of gaps in the new draft SEZ bill, which the CDC and other IDZs pointed out during the public comment process, and which the CDE also identified. But, in general, there is still confusion about the measurement of success regarding the existing IDZs: how the SEZ bill will address the identified shortcomings, how lessons from the existing IDZs will be incorporated, how labour in special zones will be regulated, and in general how they will be ‘special’ for investors and the promotion of industrial development.

So what then? There are two possibilities facing the CDC and the Coega IDZ: either to adapt and leverage its success to become the leading SEZ in South Africa, or to resist change.

There is a very strong case for merging IDZs within the newly planned framework for SEZs, both to avoid duplication and leverage off the current success of IDZs so as not lose ground (rather than re-inventing the wheel). The proposed bill seems to aim to do just that: extend the work done by IDZs and, in so doing, attract more foreign direct-investment to our shores. The uncertainty however lies in the bill’s shortcomings.

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The draft bill is geared mainly to address the deficiencies of the original IDZ programme. However, for the policy to be ground breaking – and able to inspire investor confidence – it should have been written as divorced from the challenges with the IDZ programme.

The focus on failure within the document does not engender confidence in this country’s planning and policy process. The lessons learnt from the IDZ programme should have merely been used to inform the bill, not define it. It should be a forward-looking document. Any potential investors reading the bill would conclude that South Africa is a risky investment destination; and that existing investors might start to think that they are being misled.

The bill’s deficiencies centre on undefined methods for achieving the policy objectives. The policy document lacks adequate definition of the ‘how’ – the praxis of implementation.

Without a clear path to achieving the aims in the policy, the bill becomes hollow. Likewise, it ignores the socio-economic complexity of our society as a whole by drawing comparison with other country’s SEZ successes, in which capacity and human capital are in greater supply than in South Africa.

Mostly it highlights the necessity of co-operative governance. Achieving this is a critical pivot on which to hinge South African SEZ success. However, to date, this has not been achieved within the IDZ’s – and no clearly-defined plans to attain higher levels of co-operative governance enshrined in the policy. Before the bill gets passed, a significant accumulation of political will, inter-departmental buy-in and support from the likes of Eskom, Transnet and other state-owned enterprises need to be secured – or this too will fail.

The CDE report makes some similar and significant points as raised above. However, CDE argues that South Africa needs to establish two completely new SEZs as a “matter of national priority”. Its observations, while considered and well researched, seem out of place in a country where government has already placed so much faith in its existing IDZs, now primed for absorption into the new legislation.

The creation of two new SEZs seems like duplication – especially as Coega already meets so many of the criteria which the CDE says should be taken into consideration by government with regard to SEZs. The Coega IDZ also ticks many of the boxes in the draft SEZ bill. It seems that Coega is already in a good position to successfully evolve into a SEZ.

The CDE report implores government to build these two new SEZs close to poor communities – but crucially, close to a major port or airport. Coega is a prime example of both, with the nearby Motherwell community feeding into IDZ and the Port of Ngqura already fully functional. The IDZ is also within 15 minutes’ drive of the Port Elizabeth International Airport.

From the outset, the CDC was told to look 50-75 years into the future, effectively planning the new industrial heartland of the Nelson Mandela Bay Municipality (NMBM), and arguably also that of the Eastern Cape and South Africa, for the 21st and 22nd centuries.

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The CDE report is also too general, offering more questions than answers. The arguments are largely hypothetical – especially when considering SEZs in South Africa, which will be experimental for a long-time to come, just as the IDZ’s were, and still are. Furthermore, the report fails to look at current IDZs as viable models for the transition from IDZ to SEZ. But there is agreement on the facts that the current bill does not define clearly enough what role SEZs will play, which industries should be targeted, and how industry-specific challenges can be addressed. Incentives and labour remain two moot points in the legislation.

In addition, the Coega IDZ is ironically showing great success on the cusp of the changing legislative landscape. The total investment portfolio to date at Coega amounts to R140-billion. This continued investment has benefited the local community in both short and long term employment opportunities and by the multiplier effect into the NMBM economy generally. More than 80% of labourers working on construction projects linked to the IDZ are from communities in the NMBM.

There are many other ‘real stories’ of success with the CDC and the Coega IDZ. The CDC took over and made a success of the Nelson Mandela Bay Logistics Park which enabled Volkswagen South Africa to compete successfully for the new generation Polo. Furthermore, General Motors SA now has a Pan African Parts Distribution Centre for sub-Saharan Africa in the IDZ. The CDC has also expanded its work to include the enhancement of socio-economic development in particularly challenging areas, by servicing both the public and private sector through its CDC Services wing. This section acts as an implementing agent for fast-tracking delivery, in particular the construction and upgrades of roads, schools and hospitals in both the Eastern Cape and Kwa-Zulu Natal.

One strategic imperative that the CDC recognised early enough was that self-generated revenue was a critical requirement for sustainability in the long term. Starting with revenue of less than R10 million in 2004, last year the CDC generated just over R220 million which represents nearly 70% of the grant funding received from national government; and is a major achievement in the light of South Africa’s continuing power crisis and the on-going global economic turmoil.

The above speaks volumes about the carefully planned, strategic approach to the growth of investment. The power of measured and sustained planning is obvious in Coega’s current success. Coega’s growth has been steady, but has not occurred overnight; and any future growth path should follow the same principles – with the Coega IDZ as a local example on which to hinge real analysis.

The crux of thinking around the SEZ matter should therefore be centred on how to expand the current IDZs within the new SEZ landscape so that South Africa does not dilute positive advances, but rather stimulates a more robust economic agenda for the future.

The crux of thinking around the SEZ matter should be centred on how to expand the current IDZs within the new SEZ landscape, so that South Africa does not dilute positive advances, but rather stimulates a more robust economic agenda for the future.

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Young people are social actors of change and progress in the world. They are not only leaders of tomorrow but partners in today’s socio-economic development effort. It is imperative to involve them in leadership and developmental programmes to enhance their minds and capacity to lead people. The importance of involving young people in youth leadership is not about filling a gap, but also about igniting a field of inspired connection and action.

The hunger, desire, motivation, determination and high energy of the youth can make all the difference in building a nation.

YOUTH LEADERSHIP ACADEMY AND

CULTIVATION OF THE MIND

PROCESS OFEMPOWERMENT:

Akhona Mfama (Coega Development Corporation)

YOUTH LEADERSHIP ACADEMY AND PROCESS OF EMPOWERMENT: CULTIVATION OF THE MIND


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INTRODUCTION

There have been several debates around the impact of youth leadership academies and development initiatives; but few organisations have actually taken the step to make these types of programmes part of their corporate social investment (CSI). Little support has been given to youth who show potential for leadership. Even at a national level, which needs to take cognisance of the very real challenges of the youth, there is little reflection on what the youth might need and how they can be serviced, ideally through leadership training – a glaring gap in the South African 2013 State of the Nation address. This shows that our society does not consider the value of leadership as a significant topic with which to address the challenges faced by our youth. Today’s youth lack focus, direction and the goals that should guide them towards achieving a positive future. Young people merely tend do things without considering the impact of their actions or how will it affect the society they live in. There is a void in moral, social and economic leadership initiatives for the youth.

This article seeks to highlight the challenges faced by the youth and how a youth leadership academy – and the process of empowerment – can improve personal growth and proficiencies.

CHALLENGES ENCOUNTERED BY YOUTHProblems facing today’s youth are not restricted to anyone’s ethnic group, but to young people in general. Most discussions on youth focus on inequality, poverty, unemployment, violence and HIV/AIDS; whilst little emphasis has been laid on youth leadership and development. Professional leaders like those in our government are more concerned about job creation and infrastructure development, and less anxious about ensuring overall personal growth of future leaders. These leaders, want to see the country’s economy improving by means of our youth being employed. But they fail to realise that young people need leadership skills in order to perform the job. No individual can achieve goals unless their minds are trained to reason and cope with the myriad of challenges that come with the work place.

The Executive Chairperson of the Foundation for Ethical Youth Leadership - Vusi Maupa has argued that numerous advocates of youth development in the socio-economic terrain have over the years spared no effort in their struggle to discover the challenges and possible solutions facing our youth: “As today’s youth, we are trapped in the cocoon of the ‘Fear of Failure’” - which complicates youth development to bring self-esteem down to the lowest level, paralysing ideas and minds.

Our South African youth faces the challenge of not attaining the levels of education that will enable them to compete effectively. They do not have the confidence to stand up for what they want or believe in. Some are often scared of speaking up in fear of being laughed at or ridiculed, as their opinions seem to not matter. Education, support and knowledge breeds confidence – and all three are lacking in the South African context leading youth to opt for bad or easy decisions that lead them further down the road of destruction instead of health self-construction.


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Another challenge remains the fact that many youth to perceive themselves to be leaders. They view leadership more broadly, believing someone has to be highly connected or wealthy to be regarded as a leader. What model are the youth basing leadership ideals on? Most young people understand leadership in a political manner rather than as generally held skills and attributes. This is partly due to the demoralising and disorientating effects of Apartheid on youth identity.

Pittman argues that many young people do not have the advantages that promote optimal, healthy development of the body, mind, and spirit. He notes that today’s youth do not have enough opportunities to experience positive stimulation for growth or nurturing support from community (Pittman, 1991).The media are also complicit in creating an apathetic and dumbed down youth. The promote entertainment over knowledge and advertising and brand promotion over current issues. While entertainment is not a bad thing in itself, an overdose of it has created a selfish ‘entertain-me’ culture in the youth. Because of all these distractions and the nature of media as bombardment, our youth of today has to try much harder to perform a single task with focus and excellence. More often than not, something which appears to be more appealing will catch their attention and take their focus away from their initial task.

This is why good youth leadership skills development initiatives are needed to equip young people with focus and confidence. A good way to instil the value of focus in our youth of today is to encourage them to engage in activities that make them focus undividedly, like sport. This stimulates focus in young people. When these young people focus whilst performing their everyday tasks, they will be found to be far more effective than the typical youth who is distracted by so many things around them. They will be far more efficient and concentrated on the task, thus achieving much more in life than most.

Another big challenge is that they have too many options. As a result, they lack commitment to any single task that they tackle. Although it is not negative to have many of options, it is important to teach youth leadership skills like commitment in the face of so many overwhelming options, optimum choices can be made and disorientation minimized. When the going gets tough, the tough get going. Youth need to learn the value of hard work and perseverance if they want to achieve anything worthwhile in their lives. Our youth of today have to realise that unless they put their whole heart into performing a single task well, they will not be able to succeed in life.

SIGNIFICANCE OF LEADERSHIP ACADEMIES AND DEVELOPMENTCoega Development Corporation in the Eastern Cape recently launched a Youth Leadership Academy with the aim of circumventing some of these challenges. The author attended and



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learnt that these types of academies are highly beneficial to youth as they: emphasize the teaching of fundamental character-based values, encourage academic success in young people, provide leadership opportunities, and enhance an understanding of the real impact of leadership as a force for positive change. Leadership academies and development have significant outcomes as regards empowering young people with opportunities that can develop the competencies they need in order to become successful contributory members of their community.

The South African Minister of Social Development, Bathabile Dlamini views leadership programmes as a tool to help shape our society by empowering young people to rise above their difficult circumstances; and to channel their energy towards making a positive change in their lives. She underlines the fact that our youth leadership academy nurtures and grooms young people to make a meaningful contribution to the life of our country through tapping into the abilities and capabilities of our youth (Youth Leadership Academy speech: 2011)

Young people need support and guidance in facing the challenges of today, as well as emerging ones. These programmes boost confidence and build future leaders. Moreover, leadership skills are developed through knowledge, feedback, reflection and practice. The programmes have radically tangible outcomes in that they establish high levels of self-insight required for good leadership, build high levels of leadership knowledge, establish a sound link between management and leadership skills and activate team leadership.

Behaviour and performance should be taken to higher levels during the programme. For example, a critical skill for leaders is the ability to manage their own learning. Youth academies also build leadership, organisational and communication skills, positive character traits and self-esteem that will reduce self-doubt among young people and build future leaders. It also develops personal and leadership capacities in individuals so that they individually and collectively re-frame the context within which they lead and, as such, positively impact the leadership culture of the society. The programme allows young leaders to have opportunities that not only build upon personal abilities but also provide a safe environment for experimentation. For example, if a young leader makes a mistake and is not given a chance to reflect on and apply the lessons of that mistake, apprehension about taking on responsibility as a leader will overshadow the rewards that could come from future success.The process of empowerment inspires youth by acknowledging the leadership skills and experiences they have gained through their involvement. For example, a student who actively volunteers develops strengths in communication, team work, resourcefulness, dependability, working for the greater good, and so forth.

Leadership professionals who support on such courses should develop an understanding of the diversity and cultural differences expressed through different leadership behaviours and incorporate unique styles into leadership experiences offered to youth. They should also empower and allow youth to take on significant


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Given the challenges youth face, it is important that leadership facilitators be clear about what confronts the youth and how these issues can be managed.

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responsibilities and leadership roles without expecting perfection. They should recognise that everything takes time; and leadership learning occurs even when mistakes are made. This can be done through encouraging all young people to develop a co-curricular transcript or portfolio and emphasize the variety of ways that leadership can be demonstrated without merely identifying elected or selected positions.

Given the challenges youth face, it is important that leadership facilitators be clear about what confronts the youth and how these issues can be managed. According to Blanchard, Carlos, & Randolph (1996), sharing information with young people about all aspects of the leadership, from budgets to organizational policies, is the first step to fostering empowerment. Empowerment also means teaching young people specific “plays” within the game. People have to learn new ways of thinking and working.

Leadership is an important aspect of every young person’s personal growth and development. It aids young people to understand personal values, moral and ethical decision-making, and participation in public efforts of citizenship that contribute to the community and the nation. Young people come to an active learning environment with different skills and abilities. They approach new situations and ideas by exploring, engaging with others, reflecting, and questioning in order to discover answers and implications.

Government and organisations are therefore encouraged to invest in youth leadership academies and development because young people play one of the most important roles in nation building. Youth leadership skills are essential if South Africa wants to influence those young people who will be tomorrow’s leaders.

REFERENCESBlanchard, K., Carlos, J., & Randolph, A. (1996.) Empowerment takes more than a minute. San Francisco: Berrett- Koehler.

Dlamini, B. (2011.) Speech by the Minister of Social Development, at the Youth Leadership Academy, in Pretoria: http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=21174&tid=41178

Pittman, K. June (1991.) Promoting Youth Ddevelopment: Strengthening the role of youth serving and community orga-nizations. Washington D.C.: Academy for Educational Develop-ment. http://www.sabceducation.co.za/index.php?option=com_content&view=article&id=534:sabc-education&catid=39:media-releases&Itemid=84



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One way of looking at Special Economic Zones (SEZs) is to consider the concept against the milieu of interpretations of “carpe diem”. Carpe diem - one of the most searched phrases on the internet – has two distinctly different interpretations. Popularly, carpe diem is translated from Latin as “seize the day”. The alternate (and correct) interpretation is “to pluck the day” (Roberts, 2006) and in Horace’s ode I-XI, carpe diem is used to depict the need for production to be consistent, according to how production opportunities present themselves, rather than the idea of hedonistic notions seizing the day and enjoying life whilst one can (as popularized by the motion picture - Dead Poets Society)

CARPE DIEM FOR INDUSTRIAL DEVELOPMENT?Graham Taylor (Coega Development Corporation)

SEZs-


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INTRODUCTION

This opinion piece argues that the success of a future SEZ program is dependent on enabling organizations to pluck the ever-present opportunities for industrial development in geographic areas, rather than seizing short-term windows of incentives and investments made available by government in fluid policy environments.

In 2012, the South African government issued, for public comment, a Special Economic Zones Policy and Special Economic Zones Bill (DTI, 2012a). This policy defines SEZs as “geographically designated areas of a country set aside for specifically-targeted economic activities, which are then supported through special arrangements (which may include laws), and support systems to promote industrial development. (DTI,2012a:9) The rationale for this policy is that the South African Industrial Development Zones (IDZ), established in terms of legislation enacted in 2000 (DTI,2000), have had limited success: Had the challenges of IDZs been adequately addressed, far more could have been achieved. The SEZ policy (DTI, 2012a) correctly recognizes the shortcomings of the IDZ program. It makes the point that leadership and effective implementation are more important than policy or strategy; and that co-ordination amongst all spheres of government is necessary for effective implementation. SEZ policy is not an end in itself; rather, it requires strong political and technical leadership, commitment over the long term and integrated development planning - all in a context within which strategic investment opportunities exist, and where clear industrial capabilities exist.

These, and other issues, which have stifled the growth of the Coega IDZ have long been recognized. Zimmerman (2010:90) maintains that the Coega Development Corporation (CDC), operator of the Coega IDZ, has taken a realistic view of the prevailing economy and has acknowledged that international investors can no longer be attracted by cheap bulk services such as electricity and incentives. In so doing, it has broadened its value proposition from being an Industrial Zone to an Economic Transformation Zone which leverages the inherent advantages of the regional economy. Mtimka (2010:87) identifies “creative politicking” by the CDC as being a key factor which has ensured the establishment and survival of the Coega project. The “creative politicking” required management of the relationships and activities existing between the CDC on the one hand, and the multiple social forces (including the state), on the other - as government has not had the capacity to ensure that its developmental initiatives have received the necessary support needed.

This “creative politicking” has enabled the CDC to “seize the day” and construct the necessary enabling infrastructure for a world class IDZ, whilst simultaneously making significant and lasting contributions in the broader region, thereby leveraging resources to sustain operational activities within the IDZ.

The SEZ bill (DTI,2012a) will potentially provide the space for more geographic areas to “seize the day”, and will leverage the

PERSPECTIVES 2012 4TH EDITION SEZs - CARPE DIEM FOR INDUSTRIAL DEVELOPMENT?

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BACKGROUND TO SEZS

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promise of a more focused industrial development, coordinated by dedicated structures which have stronger enabling legislation, in the form of an SEZ board. While the SEZ legislation (DTI, 2012a) is intended to provide the special arrangements and support systems necessary to support industrial development, this is by no means a new attempt to do so. IDZ’s were originally established in terms of regulations under the Manufacturing Development Act 187 of 1993 (DTI,2000); and a coordinating and support role was supposed to have been played by DTI (DTI,2006). The pitfall of opportunistic leveraging of resources from a revamped SEZ programme, whilst contributing little to real industrial development, is ever present. Strong leadership and technical co-ordination, rather than creative politicking are required, so as to ensure that the alternative view of carpe diem prevails – by plucking all available opportunities for industrial development.

While creative politicking has ensured the establishment and survival of the Coega IDZ project, resulting in the development of a world-class infrastructure for industrial development (Mtinka,2011), the number of investors attracted by IDZs is below expectation (DTI,2012a:13). At a DTI presentation to parliament (2012b:26-27) the challenges with existing IDZs were identified as: a lack of IDZ specific incentives; ad hoc funding arrangements; a lack of targeted investment promotion; poor stakeholder communication; ad hoc planning arrangements, and; weak governance arrangements.

The evidence at hand lends support to the DTI (2012b) perspective, suggesting that the creative politicking of the CDC, while securing the existence of the Coega project, has not resulted in the returns expected in terms of the original IDZ objectives. In mid 2000, foreign direct-investment emphasis rested on the CDC attracting an anchor tenant in the form of an aluminium smelter. This initiative failed, after Rio Tinto scrapped its plans due to power shortages in the country (Mail and Gaurdian,2009). Evidence suggests that CDC successes in establishing industry within the IDZ have been established by consistently plucking the opportunities which exist within the regional economy.


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The SEZ legislation (DTI,2012a) holds considerable promise for the Coega IDZ; but, the organization cannot work in isolation. Support is required to optimize the benefits of the legislation in ways which enhance its ability to pluck opportunities from the regional economy, while improving on its product offering in terms of the IDZ objectives. ’

‘PLUCKING THE OPPORTUNITIES OF THE EASTERN CAPE REGIONAL ECONOMY

Table 1: Current Operational Investors in the Coega IDZ 1

ZONE INVESTOR SECTOR INVESTMENT VALUE (R)

Coega IDZ Cape Concentrates Agro-processing 90 000 000

Coega IDZ Coega Dairy Agro-processing 30 000 000

Coega IDZ Dynamic Commodities Agro-processing 50 000 000

Coega IDZ Accoustex Automotive 5 000 000

Coega IDZ General Motors Automotive 40 000 000

Coega IDZ ABSA BPO 31 000 000

Coega IDZ Discovery BPO 10 000 000

Coega IDZ Cerebos Chemicals 60 000 000

Coega IDZ Coega Concrete Products Construction 5 000 000

Coega IDZ EC Biomass Energy 50 000 000

Coega IDZ AP Moeller South Africa Logistics 50 000 000

Coega IDZ Digistics Logistics 5 000 000

Coega IDZ PE Cold Storage Logistics 49 250 000

Coega IDZ UTI Couriers Logistics 2 500 000

Coega IDZ Total 477 750 000

NMBLP Kuehne and Nagel Automotive

NMBLP Benteler Automotive 139 000 000

NMBLP Faurecia Automotive 120 000 000

NMBLP Flextech Automotive 50 000 000

NMBLP Grupo Antolin Automotive 90 000 000

NMBLP Rehau Automotive 160 000 000

NMBLP MSC Logistics 50 000 000

NMBLP Inergy Automotive 15 000 000

NMBLP Total 624 000 000

TOTAL INVESTMENT 1 101 750 000

According to table 1, more than half of the total investments have been located in the Nelson Mandela Bay Logistics Park (NMBLP), a facility managed by the CDC on behalf of the Nelson Mandela Bay Municipality (NMBM). The NMBLP is not funded by the DTI IDZ programme, nor is it part of the Coega IDZ: it primarily services the automotive industry. The NMBLP facilities played a crucial role in doubling the vehicle exports from manufacturers in the region (ECDC,2009). Similarly, the two automotive investments in the Coega IDZ are highly dependent on the regional automotive industry. This provides clear evidence of the Coega IDZ plucking every opportunity from synergies with established regional industry and growing regional economies (but, mostly outside of the formal IDZ programme).


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Source: Adapted from CDC,2012 2

1. Table 1 includes investments in both the Coega IDZ and Nelson Mandela Bay Logistics Park

(NMBLP). While the NMBLP is managed by the CDC, it is not within the proclaimed boundary of

the Coega IDZ. The NMBLP is located in Uitenhage, approximately 30km from the Coega IDZ.

2. Table 1 was downloaded from the CDC website in September 2012 and has been adapted

through: the exclusion of redundant columns; exclusion of investments by Wind Turbine operators

in the energy sector; and the normalization of sector values.

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In a similar vein, investments in the agro processing sector, have been leveraged by plucking the linkages from the local agricultural economy. Dynamic Commodities, hailed as one of the IDZ success stories (CDC,2010), sources fruits from agricultural areas in the Eastern Cape, processing such fruits into unique ice cream products which are sold on the international market. Logistic sector industries have been established largely due to the proximity and linkages with the new Port of Ngqura; but there is no evidence of instances where these industries are benefiting from IDZ specific legislation as legislated by the South African Revenue Service (SARS,2012). Similarly, the investments in the BPO, Chemical, and Construction and Energy sectors have either (ever?) been historically present in the Coega IDZ, or are dependent on backward linkages into the regional economy.

The SEZ legislation (DTI,2012a) holds considerable promise for the Coega IDZ; but, the organization cannot work in isolation. Support is required to optimize the benefits of the legislation in ways which enhance its ability to pluck opportunities from the regional economy, while improving on its product offering in terms of the IDZ objectives. There are numerous examples which bear witness to the promise of the SEZ legislation, if the pitfalls of seizing the day can be avoided. Such pitfalls are as follows:

• The IDZ area in proximity to the Port of Ngqura needs tooptimize its synergies with the trans-shipment activities of the growing volumes of container traffic. Little is known of the container flows which are currently being experienced; and, as a result, the opportunities for processing containers, as incentivized by SARS (2012) legislation, are not being optimized. The devil is in the detail, and despite a decade of work, effect has not been given to the complexity of providing the type of “one stop shops” which were envisaged by IDZ legislation (DTI,2000).

• TheSEZpolicy (DTI,2012a:12)makesprovision for freeportswhere imported goods may be unloaded, stored, repacked, sorted or processed without being subject to customs import procedures. The Coega IDZ’s proximity to the transshipment Port of Ngqura, is an ideal opportunity; and considerable potential exists within this area if the devilish details of red tape can be resolved through the special arrangements and support systems [as envisaged by the SEZ legislation (DTI,2012a)].

• Internationally, the automotive sector is in a state of flux,with a managed transition from fossil fuel dependency - to green automotive power (HM Government,2011). In the Eastern Cape, the focus is on managing the footprints of traditional automotive production, while the automotive capitals of the world are focusing on the transition to low carbon vehicles. Despite South Africa sitting on many natural resources which will potentially power


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PLUCKING OPPORTUNITY FROM THE SEZ LEGISLATION

these changes, the amount of co-ordinated work in this sector seems negligible. Opportunity exists at the Coega IDZ for the establishment of Science and Technology Parks, in collaboration with the innovative work undertaken at local universities, which capitalize on the opportunities of green economy in niche sectors such as automotive. A focused South African programme would have to be developed through the forging of interrelationships between various government departments, the private sector, and the considerable automotive expertise which has accumulated within the CDC. In this respect, the SEZ legislation (2012) holds considerable promise. • TheTransnetRailEngineeringfacilityinUitenhageisoneofsixin the country which maintains, upgrades, engineers and provides support services for rolling stock (Transnet, 2010). While the Industrial Policy Action Plan (IPAP) for 2011/12 to 2013/14 identifies the need for the development of a metal fabrication, capital and transport equipment cluster forms an important component of industrialization and a key driver to the manufacturing sector’s competitiveness (DTI,2011 :81). Less than 30% of the Cuyler Manor site has been developed, and the decline of the Eastern Cape’s rail capacity within the interior has coincided with the Uitenhage industrial complex becoming a shadow of its former self, and is now heavily reliant on the Motor Industry. A renewed focus on the Uitenhage area, its potential synergies with the Coega IDZ, and connecting the dots with other development initiatives, could well re-invigorate a metal fabrication, engineering and energy cluster (Taylor,2011), and the creation of a focused Spatial Corridor.

Clearly, there is considerably promise in the SEZ legislation (DTI, 2012a); and much will depend on creating the necessary enabling environment for the plucking of opportunity.

The SEZ legislation makes provision for many categories of SEZ; but also makes an important distinction: “the strategic policy intentions are more important than the terminology used in the design and implementation of SEZ programmes” (2012:11). In the case of the Coega IDZ, there are many initiatives which are either currently underway, or which could be expedited to form some of the following: free ports; free trade zones; industrial parks; science and technology parks; sector development zones; or spatial corridors. The CDC is well positioned to identify strategic investment opportunities, and the Nelson Mandela Metropolitan Municipality is awash with clear industrial capabilities awaiting the types of intervention envisaged by the SEZ legislation.

However, it is the strategic policy intention which presents the DTI faces with its greatest dilemma. The SEZ legislation may well lead to queues of geographic regions, previously excluded from the IDZ programme, with every reason and intention of seizing the day, and leveraging opportunities for industrial development. Clearly, the SEZ legislation needs to be implemented so as to ensure that applications for participation in the SEZ programme pluck the


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opportunities of regional economies in ways which maximize the national benefit. And therein lies the challenge!

CDC. (2010.) Dynamic Commodities Grow in Leaps at the Coega IDZ. Accessed from http://www.coega.co.za/View.aspx?cmd=a&v=p&nl_id=7&id=20 September 2012.

CDC. (2012.) Current Operational Investors in the Coega Industrial Development Zone. Accessed from http://www.coega.com/Content2.aspx?objID=93 September 2012.

DTI. (2000.) Industrial Development Programme. Government Gazette, Pretoria: Government Notice R 1224, 1 December 2000.

DTI. (2006.) Industrial Development Programme: Amendment. Government Gazette 29320, Pretoria: Government Notice R 1065, 27 October 2006.

DTI. (2011.) Industrial Policy Action Plan 2011/12-2013/14: Economic Sectors and Employment Cluster. Pretoria: Department of Trade and Industry. Accessed from http://www.dti.gov.za/DownloadFileAction?id=561 June 2011.

DTI. (2012a.) Special Economic Zones Policy and Special Economic Zones Bill. Government Gazette 34968, Pretoria: General Notice 45 of 2012.

DTI. (2012b.) IDZs’ Readiness for SEZ Implementation: Joint Presentation to the Select Committee on Trade and International Relations and the Portfolio Committee on Trade and Industry. 23 May 2012. Accessed from http://www.dti.gov.za/parliament/idz_readiness.pdf September 2012.

ECDC. (2009.) VWSA Scores Big in Polo Export Contract. Accessed from http://www.ecdc.co.za/files/dyn_pdf/ql7E4sg3GVNUk34fcT-vzGzOs0sbk5kvL.pdf September 2012.

HM Government. (2011.) Enabling the Transition to a Green Econo-my: Government and Business Working Together – The Transition for the Automotive Industry. Accessed from http://www.business-link.gov.uk/Horizontal_Services_files/Enabling_the_Transition_to_a_Green_economy__The_tr.pdf September 2012.

Mail and Gaurdian. (2009.) Rio Tinto scraps Coega smelter plan on power woes. 16 October 2009. Accessed from http://mg.co.za/article/2009-10-16-rio-tinto-scraps-coega-smelter-plan-on-power-woes September 2012.

Mtimka, O. (2010.) The Coega Project: Creative Politicking in Post-Apartheid South Africa. MA thesis: Nelson Mandela Metropolitan University. Accessed from http://www.nmmu.ac.za/documents/theses/Coega_Creative%20Poli t icking%20in%20Post%20Apartheid%20South%20Africa.pdf September 2012.


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This “creative politicking” has enabled the CDC to “seize the day” and construct the necessary enabling infrastructure for a world class IDZ, whilst simultaneously making significant and lasting contributions in the broader region.’

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REFERENCES

Roberts, J. (2006.) Pluck the Day? Accessed from http://jroberts.blogs.com/letters/2006/02/index.html September 2012.

SARS. (2012.) Overview of Industrial Development Zones. Ac-cessed from http://www.sars.gov.za/home.asp?pid=44747 Sep-tember 2012.

Taylor, G. (2011.) Joining the Dots: New Growth Path Opportunities for the NMBM and Regional Economy. Perspectives, 3rd edition 2011: 54-63. Accessed from http://www.coega.com/DataRepository/Documents/9D1NoGK4fkoDhd4UPz9yyOmc1.pdf September 2012.

Transnet. (2010.) Transnet Rail Engineering Annual Report. Accessed from http://www.onlinewebstudio.co.za/online_reports/transnet_ar10/ops_rail.html June 2011.

Zimmerman, D. (2010.) The Role of Industrial Development Zones in South Africa’s Industrial Development and Capacity. Unpublished MA thesis: University of Stellenbosch.


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This research note reviews the provisional findings of an analysis of the Western Cape Defence industry sector which took place in the latter months of 2012. The hypothesizes that the Western Cape Defence Industrial cluster is underestimated in regard to its actual and potential capabilities, its contribution to high-tech and high-end technological innovation and enterprises, and its linkages with regional and national economy.

The study confirmed the Cinderella status of this industry sub-sector, with local and provincial policy makers seemingly not appreciating the linkages of the firms concerned with the national defence industrial base. There is no formal overview and breakdown of this sub-sector in the relevant provincial and national


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A RESEARCH NOTEProf. Richard Haines (Nelson Mandela Metropolitan University)

THE WESTERN CAPE

DEFENCEINDUSTRY:

data, with the partial exception of a fact sheet on potential FDI in the aerospace and defence sector nationally and in the Western Cape (Wesgro 2012). Part of the problem in this regard may be a diagnostic one as the majority of the companies do not focus only on defence related production. This is in line with international trends with the growing use of commercial ‘spin-in’ technologies in defence manufacture supply chains.

The offsets under the SDP (Strategic Development Programme), which were initiated during the period 1999-2001, have essentially run their course, with firms now looking to future procurement exercises for future work. The research confirmed an earlier study of defence-related industrial procurement in the Western Cape (Haines and Wellman 2005) especially in finding that the DIP offsets had less influence in sustaining this regional defence industrial base than was argued in the late 1990s and early 2000s. Those firms that managed to secure some sub-contracted work under the DIP process generally felt that the benefits of the offsets were modest at best. More seriously, the selective allocation of work had a deleterious effect on a number of small firms for whom domestically generated defence procurement had traditionally allowed them to diversify their business, and to manage their margins. Indeed, in recent years, several of these firms have closed down or are in the process of doing so.

Forthcoming procurement exercises, most especially the current one in regard to offshore coastal patrol vessels, are viewed with some optimism by selected firms most especially by those with substantive maritime interests. However, concerns remain that the awarding of contracts may be conditioned by international realpolitik, and by the increasing availability of seemingly cheaper offerings, especially from the large emergent economies.

On the question of state support, the general consensus that national and local government agencies needed to look for more informed and substantive support for the sector. It was hoped that the proclaimed shift signalled by the new Defence Review to view the defence-related industry as a ‘sovereign’ one would lead to a greater appreciation of the current and potential role of the defence-related industries at both national and sub-national levels, and a regime of support and incentives for the industry that would be less dependent on episodic and selective procurement interventions.

Among the kind of state support requested was to facilitate expansion into emerging markets such as Africa (excluding designated countries in conflict). The problem faced by those firms who were exploring this such markets, was that while they felt they offered better quality and cost-effective products, they saw themselves as being undone in the bidding processes by covert inducements and increased foreign aid interventions.

An important point raised by several of the firms was the sense that their contribution to R & D within the local and national economy remained undervalued. It was also generally felt that

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their contribution to human capital construction most especially of a high-tech nature had been largely overlooked and under-funded. The defence industry in the Western Cape, modest though it might seem, is one of the larger employees of engineering graduates in the region, and adds a further and significant value via in-house training and experience.

Also emerging from the research is the how the sector helps sustain wider networks of high tech manufacturing expertise and social capital in the Western Cape region and beyond. The firms are also draw from these networks. Thus the decline and closure of certain kinds of engineering companies and capacities has had a negative effect on the local defence industry more generally. This can be seen, for instance, in the partial loss of engine forging facilities in the region. This process would include the winding down of Atlantis Diesel Engineering in the early 2000s, but the situation has been exacerbated further with the more recent closures of other firms in this line of business.

Among the other findings were the following. Firstly, the firms were in favour of the idea of establishing a formal cluster for the industry in the Western Cape. This they thought would help strengthen networks of collaboration and help improve marketing efforts as well as improving chances of accessing state support. Secondly, there was interest from certain of the companies in looking to invest in ventures in other parts of South Africa, including the Eastern Cape and the Coega IDZ. Structured incentive packages from potential investment destinations, even if modest, would enhance this process.

The study has also underlined the importance of charting the contemporary history of defence firms in the Western Cape and in the national economy more generally. This development history would be of significant use to policy makers concerned with looking to re-invigorate the national defence industrial base.

In conclusion, the research emphasizes the strategic contribution of such firms to high-tech manufacture and associated R and D in South Africa. It demonstrates the need to understand more the dynamics and value-generation and innovation residing in the industry, and the importance of focussed interventions in the future to ensure the capacity in the Western Cape sector and within the national defence base more generally, is not diminished further over time. In short, the study confirms the revaluation of the domestic defence industry as outlined in the new Defence Review.

Haines, RJ and Wellman, G. (2005.) (With Gwendolyn Wellman) ‘‘Value Chains and Institutional Imperatives in Regional: Industrial Development: A Consideration of the Implementation and Impact of Defence Offsets in the Western Cape’. Africanus, 35, 25-44.

Wesgro. (2012.) Aerospace and Defence: Sector Fact Sheet. Cape Town: Wesgro.


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REFERENCES

As from 1994, the South African democratic government has been working very hard to improve the lives of the black majority; however, half the population still lives in poverty, jobs are scarce, and the country seems even more unequal than before. The country is faced with a situation in which the color of a person’s skin still decides his or her destiny. In its wide-ranging, in-depth and provocative analysis, South Africa Pushed to the Limit shows that although the legacies of apartheid and colonialism weigh heavy, many of the strategic choices made since 1994 have compounded those handicaps. The economy remains dominated by a handful of large corporations that are now entwined in the system of the global economy. The government has wasted its leverage over

BOOK REVIEW:

HEIN MARAIS

SOUTH AFRICAPUSHED TO THE LIMIT

Nomzamo Kolo

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their decisions in a series of miscalculations and errors. Marais explains why those choices were made, where they went awry, and why South Africa’s publicized formations of the left failed to prevent or alter them.

This book sheds some light on a variety of South Africa’s most pressing issues: from the real reasons behind President Jacob Zuma’s rise and the purging of his predecessor, Thabo Mbeki to a devastating critique of the country’s continuing AIDS crisis, South Africa Pushed to the Limit provides a unique, benchmark analysis of the long journey beyond apartheid. This book sheds light on what became of the South African revolution; and furthermore highlights some very harsh realities and lessons for those of us who are in the midst of revolution today. The book also shows that even though the legacies of apartheid and colonialism still weigh on us heavily, many strategic decisions have been made since the early 1990’s whilst simultaneously working together on such handicaps.

In this book, Marais asserts that the basic structure of the country’s economy continues to serve a minority which covers a majority of political elites; whilst government, on the other hand, is spending a lot on errors and miscalculations in its effort to reduce poverty and inequality. This book further explains why such choices were made: where they went wrong, and why South Africa failed to prevent and alter them.

Marais’ book begins with a discussion regarding a number of realities; including social grants, as well as empowerment strategies like ASGISA - as well as the BBBEE strategies (regarded as government intervention strategies) in order to redress the ills of the apartheid system.

The first section of this book (Limits to Change) explores a familiar history from an unfamiliar angle. It examines South Africa’s political and economic structures; the developments that led to the political settlement in 1993, and the terms on which the transition would play out.

Chapter One focuses on the economic, political and social patterns of capital accumulation, beginning with the nineteenth century. This chapter explains the initial phases of industrialization and the moulding of the economy; the stirrings of organized resistance; the origins of the apartheid system; and the gradual disintegration of the popular movement’s evolution and tactics up to the 1970’s.

Chapters two and three closely examine the defeat of the apartheid system, the rise of resistance in the 1980’s, the eventual political settlement, and the undertow of economic changes that were taking place. These two chapters provide the mise en scene for chapter four, thoroughly examining the imposition of the structural adjustments policy in 1996, which had a lot of controversies erupting around its key outcomes. This chapter clarifies that the end of the apartheid system in


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South Africa was not perceived to be a miraculous rapture, but rather a dramatic phase in an ongoing struggle which resolved a set of political, economic and social contradictions that had become unruly in the 1970’s.

Chapter five assesses the economy’s performance in the first decade of the 21st century. This section points out the underlying biases of the economy: in particular, the enduring weight of the minerals and energy sectors. It further discusses the continuities linking the key post-apartheid economic policies with the appropriate neoliberal adjustments which the apartheid regime played out in the 1980’s.

Chapter six provides details of the many ways in which the world of work was reshaped, the trade-union movements’ efforts to regain the initiative; and the outlook for attempts to reverse South Africa’s extraordinarily-high unemployment rates. The chapter also reveals that the traditional narrative of economic modernization seemed to be running in reverse, generating greater informality and fewer decent jobs.

Chapter seven assesses the accomplishments, with a close focus on the trends of poverty, inequality and hunger in the distribution of social wage. Whilst reading this chapter it becomes clear that the scope and quality of change is lagging; and that this is substantiated by the share of the population that has access to social services.

Chapter eight reviews the origins, merits and achievements of South Africa’s social grant system which ranks amongst the most impressive in the so-called developing world. Marais asserts that social grants have turned out to be the single most effective anti-poverty tool deployed after 1994, despite the fact that they are allocated begrudgingly. In this book Marais argues that social grants are a “flinty aversion to alleged handouts”; and that dependency prevails whilst the social-protection system remains constrained by narrow conceptions of the state, and by a distrust of rights-based demands on state resources.

Chapter nine contains a close analysis of the political economy of AIDS, an epidemic that seems to be changing the country. Marais sees some of its impact as vivid: and some as cumulative, subterranean and channeled into the lives and communities of the poor.

This book provides a thorough analysis of South Africa’s political economy. It also provides food for thought - and could be used by policy makers to rectify some of the mistakes which are the result of the current inequalities which our country is faced with.

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NOTES
