Transforming the Economy

ASGI-SA
The year 2005 marked a significant shift in the approach of government to addressing growth and development. The launch of ASGISA affirmed a process of exploring what would constitute a developmental state and how a developmental state could intervene to unblock obstacles to economic development while ensuring that the benefits of accelerated growth are shared by the poorest and most marginal sectors of society. ASGISA in effect addresses a decade of state underinvestment in infrastructure while acknowledging that the current socio-economic growth path has not adequately addressed the needs of all South Africans – ie where there has been economic growth it has not been shared.

The year 2005 marked a significant shift in the approach of government to addressing growth and development. The launch of ASGISA affirmed a process of exploring what would constitute a developmental state and how a developmental state could intervene to unblock obstacles to economic development while ensuring that the benefits of accelerated growth are shared by the poorest and most marginal sectors of society. ASGISA in effect addresses a decade of state underinvestment in infrastructure while acknowledging that the current socio-economic growth path has not adequately addressed the needs of all South Africans – ie where there has been economic growth it has not been shared.

The realities informing this rethink are nowhere more acute than in the Eastern Cape. Underdevelopment, poverty and infrastructure poverty still characterise the eastern and more rural parts of the province. Ironically, the most advantaged and urban sector in the province – the auto sector – is also the sector that has been subsidised most by government though the MIPD (Motor Industry Development Programme). Despite significant growth performance over the past decade the sector has however lost one tenth of its labour force. Yet the areas of greatest need and where economic potential lies fallow have not as yet received sufficient investments to unlock this potential. ASGISA however offers some relief in this regard through the inclusion of the Umzimvubu and Forestry and Timber Industries Expansion Project as core initiatives for the Eastern Cape. The realisation of these two projects is critical to unlocking the potential of the most underdeveloped regions of the province and central to the PGDP objectives of agrarian transformation and diversifying the provincial economy out of its dependence on the auto sector. This also reflects the kind of resource transfers that will be necessary to begin responding to the structural constraints of the second economy areas in the province.

Jobz Summit
Employment creation is undoubtedly one of the greatest challenges facing South Africa and the Eastern Cape in particular. Building on the 1998 Presidential Jobs Summit and 2003 National Growth & Development Summit, the Eastern Cape Jobs Summit was held in February 2006 with a view to committing all social partners to address the challenge of unemployment in the Province.

ECSECC played an important role in this process. It facilitated the development of the Job Summit Agreement which commits the social partners to a number of short, medium and long term outcomes in support of 2014 targets of the PGDP. The Eastern Cape Job Summit Agreement related to accelerated public investment and strategic infrastructure; a local procurement campaign; support to SMME's and Co-operatives; accelerated land reform and a commitment from provincial government to design and implement strategies for filling vacant posts prioritising areas where service delivery is compromised by vacancies.

Growth and Jobs

The Eastern Cape at last seems to be heading into a direction of sustained economic growth. The trends in the latest GDP-R figures released in November 2006 confirm the sector priorities identified in the PGDP, the Jobs Summit and the emerging provincial industrial development plan. During 2005 the provincial economy almost hit 5% economic growth (4.8%) the highest growth rate achieved over the past decade. The primary sector recorded the highest growth rate in economic output at a full 5% with agriculture, forestry and fishing accounting for the greatest share at 5.%. The secondary sector (4.8%) as well as the tertiary sector (4.7%) were not far behind indicating a generalised upsurge in economic activity throughout the Eastern Cape economy. Within the secondary sector, the construction sector (10.1%) showed the greatest economic output with the manufacturing sector following at a distant 4.2%. The tertiary sub sector showed a fairly even and generalised economic growth rate with finance, real estate and business services (5.4%) only marginally ahead of the other tertiary sectors. General government services recorded the lowest growth rate (3.9%) within the tertiary sector signalling an optimistic trend in private sector services sector growth.
 

According to the Labour force survey the Eastern Cape economy lost 278 000 jobs in the period March 2001 to March 2004. However the period March 2004 to March 2006 saw a phenomenal 507 000 jobs created. Almost half of these were in the agriculture, hunting, forestry and fishing sectors (244 000) followed by Wholesale and retail trade (129 000), manufacturing (44 000), Construction (31 000), community services (25 000) and financial services (25 000).

Between 2001 to 2004 The Eastern Cape lost 178 000 jobs in the Agriculture, hunting, forestry and fishing sectors with almost half the employment in this sector being eroded (46%). However from March 2004 to March 2006 this was reversed with an increase of some 116% or the creation of 244 000 jobs in this sector. These large time-series variances in data suggest the need for more primary research to verify trends in the Labour Force Survey. Given that many of the new jobs are in informal agriculture, suggests qualitative is needed to unpack the quality and sustainability of these new jobs. This will be addressed in the ECSECC Growth and Jobs Barometer which is to be launched in early 2007.  


Co-Operatives

In the course of the last year, South Africa has come to a recognition that in there is a need for increased state intervention in the economy, as has been noted elsewhere in this report. Increasingly, Cooperatives has become part of the South African discourse on economic growth and economic transformation. Cooperatives have the possibility for responding to human, social and economic development goals. A successful cooperatives movement may through combination of mobilisation, organisation and democratic control over accumulation and distribution of surplus contribute to changing power and social relations in favour of the poor.

The South African experience with Cooperatives, however, is one of duality and inequality, mirroring Apartheid capitalist development in the country. State supported white agricultural cooperatives in the Apartheid era are the best example of this duality. Other cooperatives are largely under capitalised, in rural areas, townships or in the informal economy, such as stokvels or burial societies. Eastern Cape is no exception to this experience.

However, the post Apartheid era has seen a growth of SMME and community enterprises, with cooperatives seen largely as a form of community enterprise. Some former state owned companies or institutions were also turned into cooperatives, supported by the state. The Maiybuye Transport Corporation in Umtata and the Magwa Tea estate in Lusikisiki are examples of this. A baseline study conducted in 2001 found that the largest concentration of cooperatives is in Umtata, East London, Matatiele and the Wild Coast. Fewer cooperatives could be found in areas such as Cradock, Barkley East and Alice. These cooperatives are largely agricultural or multi-purpose, and to a lesser extent Arts, Crafts or clothing[1].  

Black Economic Empowerment is intended to contribute to transferring ownership of the economy to black people and is one of the government key strategies to address Apartheid imbalances. However, the experiences with BEE has been that it has contributed to provide entry into the middle class building a small black elite and, rather than having widespread effect on accumulation, distribution and ownership structure across the economy. The Department of Education in 2005 recognised that the provincial government, as one of the largest procurers of goods and services in the province should make use of cooperatives and community enterprises and as such increase the benefits from available budgets by boosting local economies, beyond BEE. The Department launched this concept as “A new economic pathway” and the School Nutrition Program was used a pilot.

Experiences with cooperatives, nationally and internationally, are that they often fail to do what they are intended to. Cooperatives have knowledge, information and support requirements distinct from other forms of small business and enterprises. The lack of access to capital is often also a major barrier to successful cooperatives[2]. Before embarking on large scale procurement from cooperatives, there is a need to understand the dynamics of supply and demand in the relevant sectors, nature and scale of markets, economic of scale, quality and sustainability of supply, logistics etc. The necessary support mechanisms must also be in place. In addition, there is a tendency to promote cooperatives in primary production (e.g. small scale agriculture), instead of promoting cooperative and worker ownership across the value chain, where more value is produced.

Cooperative ownership and democratic control over production, distribution and entire value chains provide a possibility to shift the balance of power in favour of workers and consumers, however there is a need for a carefully though through provincial strategy, which should be developed with participation of the cooperatives movement itself. This strategy should talk to promotion of cooperatives, strengthening of the necessary support mechanisms, financing, strengthening the knowledge base, establishment of an independent Cooperatives movement and a thorough understanding of the areas in which preferential procurement from cooperatives is possible. Organisational dynamics of cooperatives themselves should also be paid attention to.

[1] National Cooperatives Association of South Africa (2001) Hope in Action: Cooperatives in South Africa, Johannesburg, March 2001.

[2] Umsobomvu Youth Fund (2003) Youth Participation in co-operatives in South Africa, Johannesburg, 2003.