Local Economic Development Summit- 29 October 2012

1. Local Economic Development Summit- 29 October 2012 Recent Economic Developments in KwaZulu-Natal by Cosmas Hamadziripi, Economist

2. Contents • Global Economic Developments • Economic Growth Trends • Recent labour Market Developments • Catalysts for Local Economic Development

3. Global Economic Developments • South Africa is a small open economy which is susceptible to changes in the global economy. • In 2011, the global economy was characterized by slow growth with a growth rate of 3.8% being recorded. Factors that weighed down global economic growth include among others: • Euro zone crisis • Rising commodity prices especially food and energy • IMF expects the global economy to grow by 3.3% in 2012 and 3.5% in 2013 at the back of the aforementioned factors. • IMF expects the following average annual growth rates in 2012: • USA (2.2% compared to 2.8% in 2011) • Japan (2.2% compared to -0.8%) • UK (-0.4% compared to 0.8% in 2012) • Germany (0.9% compared to 3.1% in 2011) • France (1.7% compared to 0.1% in 2011)

4. Growth Trends in Countries Industrialised

5. Emerging Markets IMF Growth Forecasts • Emerging economies continue to drive global economic growth • Exports growth has continued to contribute to China’s economic growth • Buoyant commodity prices (gold, platinum, oil) and relatively strong consumer demand are the major drivers of economic growth. • High food and fuel prices in low-income countries. • Sub-Saharan Africa has also been a major driver growth in emerging economies particularly Angola, Mauritius, Ghana and Nigeria Slower Growth

6. Growth Trends in Emerging Markets

7. Growth Trends in South Africa and KwaZulu-Natal Characteristics of SA Economic Growth • Volatile and slow • Minimal impact on employment- Jobless growth; • Growth not consistent with trends observed in other emerging markets • Poverty has declined but impact minimal • Demand/Consumption driven growth. • Domestic demand driven • High inequality • South Africa’s growth trajectory post recession remained heavily subdued compared to pre-recession period. • National downgraded growth forecasts from 2.8% to 2.5% (1% lower than the 2.6% expected by IMF). • KwaZulu-Natal economy depicted a similar growth trend in during the 1st half of 2012 • Growth is lower than the range (5-7%) specified by the New Growth Path to achieve the 5 million employment target by 2020

8. South Africa and KwaZulu-Natal Economic Growth Trends South Africa Quarter-on-Quarter Growth KwaZulu-Natal Quarter-on-Quarter Growth

9. Sectoral Growth Trends • Subdued growth in traditional economic drivers i.e. agriculture, mining and manufacturing; • Robust growth in service oriented sectors such as retail trade, finance and banking, transport and communication among others. • Declining trend observed in construction sector, government remains a significant player in the South African economy.

10. SA Sectoral Trends

11. Sectoral Growth Constrains Mining • Declining investment • Rezoning of agricultural land • Infrastructural bottlenecks- e.g. rail to transport bulk produce such as maize • Lack of broader participation- sector characterized by Ageing farmers • Wild Cats Strike • Shrinking global demand affecting exports; • Volatile commodity prices; • Uncertainty surrounding ownership- constraining investment; Agriculture Transport and Logistics Manufacturing • Slow down in key export markets; • High dependence on imported goods especially finished goods, apparels, luxuries- Export of Jobs • High dependence on commodity exports • External competition • External Shocks (Oil prices, recession, Japanese Crisis, EU debt crisis). • Increasing wages negatively impacting on international competitiveness • Rail underdevelopment; • Port capacity constraints; • Lack of social Capital • Congestion on the roads esp. N3 and its feeder road networks Tourism Services • Unpalatable sentiments about crime and HIV; • Volatile commodity prices; • Limited international flights • Skills shortage • High capital flight

12. Possible Mitigating Measures Tourism • Attract more direct international flights to King Shaka International; • Aggressively market the province and especially the two world heritage sites as an alternative to the typical Cape Town – Kruger, foreign tourist • Develop a dedicated passenger liner terminal and hub (Durban or Richards Bay) • Develop an iconic, internationally ‘must-see’ tourist attraction (i.e. giant Shaka Statue) • Develop an upmarket beach resort; develop an overnight coastal hike • Farmer training institutions • Protect high value agricultural land against rezoning • Develop vibrant subsistence farming • Optimise Dube Trade Port capacity with a view to establishing a efficient and prosperous perishable product export industry • New Model for Land Reform Agriculture Transport and Logistics • Speedy implementation of Strategic Infrastructure Projects (SIPs) • Road, rail and port infrastructure • Rehabilitate airport infrastructure- KZN Airport Strategy key Manufacturing Mining • Zoning of land for industrial development • Implementation of SEZs • Develop capacity to export and broaden export bundle • Encourage the production of import competing goods • Address labour market rigidities • Increased beneficiation of KZN’s mineral products • Address uncertainty surrounding ownership- constraining investment;

13. Labour Market Developments

14. Characteristics of South African labour market • Low employment creation and high unemployment; • High number of discouraged work seekers • High discouraged work seekers • Scarcity of Skills • Brain drain • Declining employment in the traditional sectors (agriculture, mining and manufacturing) vis-à-vis the services sector • Labour market rigidities- Labour Laws

15. Labour market developments  The weak global economic recovery, together with the prevailing uncertainty about the global economy, is still weighing significantly on job creation.  However, KZN economy created 123,000 new jobs in the 2011 compared to 265,000 jobs nationally. The KZN economy only created 1,000 new jobs in the 2nd quarter of 2012  Sectors that continue to drive employment growth are wholesale & retail, Community and Social Services (including government).

16. Employment Sectoral Employment Comparative Employment

18. Unemployment Rates (Official and Expanded) per province (%) • Source: StatsSA, Aug 2012

19. Hope is not Lost

20. Catalysts for Local Economic Growth

21. Export Development as a Catalyst for LED • Grow Exports- It is scientifically proven that Every 0.01% increase in (X+M)/GDP raises income over the subsequent 20 years by an estimated 3%. • Sustained growth in the non-tradable sector viz. the tradable sector • Large contribution of raw and semi-manufactured goods in the total exports • Capitalise on regional integration as traditional markets are constrained • Beneficiation/ value addition key to sustained export growth- economic growth and job creation • Lobby national government to protect key job creation sectors such as clothing and textiles Trade Balance as % of GDP (2001-2011)

22. Exports as Catalyst for LED

23. Optimise the benefits of Regional Integration for export growth

24. Positive Investment Climate Critical for Local Economic Growth Negative Developments Positive Developments • In Standard and Poor’s downgraded South Africa’s government bond rating from BBB+ to BBB • An obligation rated 'BBB' exhibits adequate protection parameters. • However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. • Deteriorating credit worthiness • Macroeconomic instability- Wild Cat strikes in the mining sector • In the first half of 2012, global FDI fell by 8% to an estimated US$668-billion, down from US$729-billion in first half of 2011. South Africa suffered a significant fall in FDI inflows in the first half of 2012 due to slower economic growth. • Over the past year, South Africa has gained some ground in becoming a more attractive investment destination. • South Africa has improved its ranking on the ease of doing business from ranking 74 in 2011 to 44 out of 183 countries in 2012. (Doing Business 2012 by the World Bank) • Overall, South Africa was ranked number one in ease of obtaining credit; number one in Auditing Standards; and number one in the regulation of the securities exchange.

25. Foreign Direct Investment

26. Industrial Development as an engine for LED KZN Industrial Development Business Retention Innovation Business Expansion Business Attraction Beneficiation Other Initiatives Regional Industrial Hubs KZN SEZs • Growth Potential • Renewable Energy • Agro-processing • Chemicals • Developing Sectors • Capital Equipment Electronics • Transport and Logistics Regional Comparative Advantage Sectors Spatial Economic Development

27. Categories of Comparative Advantages

28. Proposed SEZs and Feeder Industrial Hub

29. Robust implementation of Policies ingredient for LED • New Growth Path (NGP) • National Development Plan (NDP) • SEZs Bill • IPAP2 Policy Targets • Unemployment • Poverty • Inequality • Sustainable economic growth • Unemployment- Youth • Poverty- Youth • Inequality- Youth • Sustainable Economic Growth • Provincial Growth and Development • Provincial Spatial Economic Development Strategy (PSEDS) • Industrial Development Strategy (PSEDS) • Maritime Strategy • Export Strategy • Investment Strategy • KZN Tourism Master Plan • Rural Development Strategy • Human Settlement Strategy • Green Economy • Airport • Freight and Logistics • Catalytic Interventions • Infrastructure Development • Special Economic Zones • Corridor Development • Small Town Rehabilitation • Industrial Hubs • Aerotropolis • Enterprise Development • Green Economy • Maritime Industry Development Robust Implementation Critical YEES

30. Infrastructure Development as a Catalyst to LED • R845-billion has been budgeted for public infrastructure projects • 17 strategic projects prioritised by Presidential Infrastructure Coordinating Commission's (PICC’s) t be implemented over 20 years. • Some of the SIPS critical for LED development on KZN include: • Durban- Free State– Gauteng Logistics and Industrial Corridor (SIP2) • SIP 3: South Eastern node & corridor development (including N2) • Rural Development (SIP 11) • SIP 9: Electricity Generation to support socioeconomic development • SIP 8: Green Energy in support of the South African economy • SIP 6: Integrated Municipal Infrastructure Project • SIP 11: Agri-logistics and rural infrastructure • SIP 17: Regional Integration for African cooperation and development

31. THANK YOU