Presentation to LED Conference KZN 17 March 2009

1. Maximising Shared Growth The Local Economic Development Initiative Presentation to LED Conference KZN 17 March 2009

2. Contents • The Challenge at Hand • LED Practice to Date • Time for a New Approach: The DBSA LEDI • Integration with Other Initiatives • National Departments • The rest of the Bank • Conclusion

3. The Challenge at Hand • Since 1994, South Africa has made great strides towards achieving many of the socio-economic goals outlined in the RDP. However, millions of South Africans continue to live in poverty, excluded from the benefits of increasing prosperity • The characteristics of the national as well as local space economies are very important enablers or disablers of economic growth as well as social and economic inclusion • Have to find a way: • To ensure that the economies of our major urban areas act as spaces of inclusion not exclusion, of economic integration and not growing marginalization and inequity • Of spreading opportunity through maximizing the economic potential of areas outside the dominant cores, through fostering local space economies that drive shared growth • To take advantage of high-impact, quick-win investment opportunities that could have a catalytic ripple effect on economic growth

4. What is LED? • The purpose of local economic development (LED) is to build up the economic capacity of a local area to improve its economic future and the quality of life for all. • It is a process by which public, business and non-governmental sector partners work collectively to create better conditions for economic growth, employment generation and sustainable development as a whole.

5. LED Practice to Date • The Information Gap • Most localities have yet to adequately map their competitive and comparative advantage whilst the data analysis underlying the National Spatial Development Perspective (NSDP) still needs localisation and concretization. In addition, some municipalities still do not have a full understanding of the ownership of land and other assets in their area. • The Strategic Gap • A focus on projects rather than strategy; different understandings of what constitutes LED; constraining paradigms (false dichotomy of pro-poor or pro-growth) • The Financial Gap • Many Category B & C municipalities struggle to access and/or spend MIG and other government grants due to internal capacity constraints whilst a poor credit rating and weak revenue base bar some from accessing existing loan instruments. • The Institutional Gap • In the majority of municipalities as well as some other spheres, the requisite capacities to develop and/or implement development strategies is not in place e.g. business intelligence systems, LED expertise, infrastructure investment planning and stakeholder management capabilities etc. • Latter particularly important within a context of multi-jurisdictionality • Various government departments and agencies have instigated a number of support measures aimed at tackling different pieces of the puzzle - but these tend to be purely consultant driven • All rely in one form or another on the recipient entity having the requisite capacity to draw-upon and strategically align different instruments to build key networks and drive a coherent development agenda – this capacity often does not exist • Even where the capacity does exist, it’s often too caught-up in managing day-to-day imperatives to find time to stand back and look at things from a fresh perspective

6. Time for a New Approach

7. Role of DBSA in LED Strategic Advice Local Economic Development Initiative Process Facilitation Resource Mobilisation

8. Purpose of LEDI • LEDI funds catalytic economic infrastructure projects as well as the development and implementation of economic turn-around strategies within areas of economic potential with the aim of stimulating a reconfiguration in national and local space economies in order to foster shared growth & financial sustainability

9. Support for Project and Programmes Primary Criteria Economic Potential, Governance & Administrative Leadership and Social Capital Catalytic Economic Infrastructure (Clients unable to access existing instruments) Economic Turn-Around Strategies (Select, targeted interventions in high-impact areas) • Projects must be: • Self-sustaining in the long-term • Boost local Comparative Advantage • Decrease poverty & unemployment • SM & SC will: • Originate projects & manage their • Implementation • Economic & financial modeling • LEDF provides: • QA of applications • Preparation grants & loan finance • Strategy Development • Client must have/develop: • An economic turn-around • strategy, infrastructure • investment plan & OD • Programme • ID quick-wins • LEDF provides: • TA grants • Economic modeling • Program mgt support • Program Development • Client must: • ID priority projects • Project & programme • planning • Implement quick-wins • LEDF provides: • Preparation grants • Crowd-in 3rd party funding • Infrastructure loan finance • Program mgmt support • Program Implementation • LEDF will provide: • Client PMO • Infrastructure PGs/loans • Non-infrastructure • TAs by exception • Client PMO will manage: • Stakeholder mgmt • Project roll-out • OD roll-out • Funding applications • Outcome Indicators (LEDF) • % increase in GVA • # of ‘permanent’ jobs created • Output Indicator (SM&SC) • % of planned projects completed on • time & on budget • Outcome Indicators • % increase in GVA • Y-on-Y increase in revenue • Client cost : income ratio • # of jobs created • % increase in participation rate • of vulnerable groups • Output Indicators • % of quick-win & ED project completed OTOB • % spend of MIG & other grant funds • Project co-funding ratio • Duration of member participation in social compacts • % of action learning projects completed

10. Funding Criteria • Primary: What is the likelihood of success? • Economic Potential • 50 points • Governance & Administrative Leadership • 25 points • Social Capital • 25 points • Threshold = 60/100 (60%) • Secondary: Infrastructure Projects • Catalytic Effect • Spatial Impact • Fiscal Capacity • Financial Sustainability • Secondary: ED Programmes • Quality Strategic Frameworks • Development Impact • Stakeholder Support • Fiscal Capacity • Financial Sustainability Comparative Advantage Key drivers of Competitive Advantage

11. Strategic Advice

12. Intelligent Visions (1) • Understanding the local space economy • Comparative advantage? • Economic potential • Natural assets • Addressable markets • Linkages, flows & migration • Services & utilities • Labour & skills • Levels of Poverty & disease • etc • Past constraints and new opportunities? • How to enhance the drivers of Competitive Advantage • Governance • Administrative leadership • Social capital • How to maximise impact • Where to intervene to get the greatest ‘bang for your buck’ • Key relationships between interventions

13. Intelligent Visions (2)Linking strategy to realistic targets and outcomes • The LEDI Regional Economi Model uses economic multipliers to calculate the impact of an investment on the regional economy • The multipliers are based on the available provincial multipliers, adjusted for the known leakages of the municipal economy • There are three types of economic impact that such multipliers capture: • Direct effects - the changes (growth) in economic activity as a direct consequence of the investment in the region (e.g. a new furniture factory - its output increases that of the region) • Indirect effects - growth in the business of suppliers to the directly impacted businesses (e.g. increased business of the suppliers of raw materials and services to the new factory) • Induced effects - economic growth stimulated by the spending of additional workers employed as a consequence of the above two effects • The multipliers calculate the economic impact across the different sectors of the region’s economy

14. Intelligent Visions (3) • Linking strategy to space is key • Ensuring spatial development frameworks (based on sustainable development principles) act as a catalytic platform for collective action • SDFs must Integrate all current & future investments re growth, infrastructure & sustainable resource use into a simple, single visual representation of the To Be state for the local area. • Requires adequate GIS-based business intelligence platforms to be in place • Processes for developing SDFs, LED Strategies and CIPs must be integrated

15. Influencing the Private Sector • Gearing Private Sector Investment • Appropriate, spatially referenced fiscal & incentive frameworks • Availability of public sector risk mitigation instruments • Efficient administrative processes • Transparent procurement & contract management processes • Enforcement capabilities

16. The Importance of Access • Increasing access to economic opportunities • Transport infrastructure • Densification/compaction • Skills • Information

17. Localisation is Key • Ensuring Localisation within the Context of Market Integration • Create local markets • Forging supplier value chains/distributional networks between local SMMEs and large companies • Improving the power to consume by: • Increasing the affordability and availability of commodities • Providing incentives for the use of local labour • Fostering local social & economic networks as well as innovative platforms for trade & exchange

18. Strong Institutions Imperative • Institutional breadth • Strong leadership • Ability to link visions to implementation • Willingness to make hard trade-offs • Trust-based networks • Institutional depth • Strategic Planning Capability • Portfolio & Performance Management • The dependent relationships between LED projects, increased institutional capacity and revenue enhancement need to be mapped and managed • Reliant on building adequate programme management capabilities within municipalities • Revenue & Financial Management • Building municipal capacity to direct and manage financial flows

19. The Bottomline • New forms of intermediation required • Building trust-based relationships between key players • Private/private • Private/public • Private/public/community • Structuring productive partnerships • SPVs • A ‘fresh pair of eyes’ • Increasing access to opportunities and markets • Fostering critical mass • Clusters • Social capital • Unlocking investment

20. Process Facilitation

21. Roles • Facilitating the strategy development and implementation planning process • Identification of key systemic intervention that will provide the maximum impact • Harnessing People Power • The multi-jurisdictional, multi-stakeholder nature LED interventions require the establishment of social compacts to maximise co-ordination and ownership • Brokering relationships between the state and the local private sector • Building relationships of trust • Stakeholder engagement processes must maximise voice and agency • Bolstering local institutional capacity • Advising key political and administrative leadership • Identifying and seeking to address critical institutional gaps • Maintaining Momentum • Driving the programme management process • Building credibility quickly • Benefits of optimising linkages between LED, service delivery choices and financial sustainability clear • Quick wins crucial

22. The Support Process: Catalytic Projects Phase 1 Approval Phase 2 Approval Project Initiation Project Implementation Project Preparation Appraisal Report Approval Process Programme Planning & Management Crowd-in 3rd Party Funding Approval Process Performance Monitoring PMO Costing Financial Management, Disbursements, Procurement & Contract Management Financial Modeling Overall Financial Management & Disbursements Quality Assurance Expert Panel Quality Assurance Project Implementation Feasibility Study Service Providers Approval Loan Application For Design & Construction Deploy Project Manager Crowd-in Funding & Partners Roll-out Project LEDF Phase 1: Project Initiation Area assessment of economic potential & need Review of current LED Strategies, SDF and CIP Pre-feasibility assessment Costing of TA support required Stakeholder MoU Establish Requisite Institutional Capacity Identify institutional Mechanisms Required Approval Source SPs for Feasibility Study High-level Institutional Review Manage Stakeholders

23. The Support Process: ED Programmes Phase 1 Approval Phase 2 Approval Programme Initiation Programme Implementation Programme Preparation Appraisal Report Approval Process Programme Planning & Management Crowd-in 3rd Party Funding Approval Process PMO Set-up & Deployees Performance Monitoring PMO Costing Financial Management, Disbursements, Procurement & Contract Management Financial Modeling Overall Financial Management & Disbursements Quality Assurance Expert Panel Quality Assurance Project Implementation Develop Strategies & Programmes Service Providers Approval LEDI Phase 2 Application Establish Client PMO Develop & Cost OD Programme Planning of Priority Projects Roll-out Priority Projects Institutional Capacity Assessment LEDF Phase 1: Project Initiation Assessment of economic potential & need Gap analysis of current strategies & initiatives Stakeholder MoU Costing of preparation support required Identification of spatially neutral quick-win infrastructure projects Ongoing Project Planning & Funding Applications Programme Sequencing Crowd-in Funding Approval GDS/SDF Infrastructure Investment Planning & Modeling Revenue Enhancement Strategy Roll-out OD Programme Roll-out Quick-win Projects Ongoing Roll-out of Quick-win Projects

24. Resource Mobilisation

25. Crowding-in Funding • Assisting municipalities access existing government finance • Facilitating investment by national private sector funding institutions • Facilitating investment by international funding agencies • Helping municipalities build relationships with local private sector investors

26. Innovative funding instruments Strategic combination of DBSA technical assistance grants and loan finance LEDI Loan largely targeted at municipalities unable to access existing commercial or concessional instruments LEDI also helps structure and facilitate access to existing bank and 3rd party funding LEDI has a flexible approach to loan recovery – to match enhanced revenue resulting from the project/programme 25

27. Innovative Funding Instruments … simulated absorption capacity leveraging fiscal disbursements … Municipal revenue line Grant funding Grant funding Re- payment Stream Municipal Revenue Municipal Revenue 0 3 5 15 Loan Term to Maturity - years YEARS 0 TO 3 - Moratorium on interest and capital repayment YEARS 3 TO 5 - Interest payment only, moratorium on capital repayment YEARS 5 TO 15 - Interest and capital repayments

28. Integration with Other Initiatives

29. Points of Integration

30. National Departments • Common approach to socio-economic profiles to avoid duplication • Presidency & DTI • Common approach to economic modeling • DTI • Spatial trends • Presidency, SA Cities Network • Co-operation in intervention areas • dplg (URD) • Presidency • DTI/IDC

31. Donor Agencies • Co-operation in launch sites • GTZ • DFID still finalising focus of next bi-national agreement

32. Conclusion • It is new initiative looking at local economic development holistically • Shift away from small poverty alleviation to large catalytic impact • Stresses integration across municipal functions • Assist municipalities who do not have access to normal loans • Provides a learning curve

33. Questions?