Buffalo City Growth Blueprint

1. Buffalo City Growth Blueprint March 2006

2. Table of Contents I. Executive Summary II. Invest Buffalo City • Overview • Business Plan • Organization Model • Investment & Governance • Year 1 Business Development Budget • Marketing Strategy • Benchmarking Return III. Business Retention • Overview • Key Fundamentals • Indicators & Requirements IV. Summary

3. I.Executive Summary Since 1998, Buffalo City has lost 40,000+ textile jobs. Unemployment is 40%; the figure is higher in semi-skilled and unskilled labor sets. The net loss in consumer spending is incalculable. Buffalo City’s economy is narrowly premised on auto manufacturing and export through the Port of East London. Development of the Port of Coega is a significant challenge. Broadening the economy is a prudent hedge in response to future uncertainty. This report recommends two immediate actions: First, the creation of a non-profit marketing corporation to increase capital inquiries and employment; and second, the development and execution of a robust business retention program. Failure to significantly recruit new employment or retain existing industries will weaken racial economic integration, increase unemployment, erode long-term economic growth and balloon government spending.

4. II. Invest Buffalo City

5. Overview • Investors are drawn from local firms with sales linked to economic growth, e.g., Phone Company; Utility (Public or Private); Banks; Developers; Construction; Realtors; IDZ; IDC; Port of East London; SAA; Marine Shippers; Architects, etc…and largest employers seeking community investment, e.g., DCSA, auto suppliers, truckers, Buffalo City Municipality, etc. • Four annual investment levels (US currency): $5,000.00 Bronze Member; $10,000 Silver Member; $25,000 Gold Member; $50,000+ Diamond Member. This can/should be adjusted to fit local norms. • 36-member board and nine member Executive Committee (investors determine true size). Board elects the Executive Committee and meets bi-annually to determine annual strategic objectives, goals and progress; Executive Committee meets monthly for management and financial review. Organizational control is vested in the full board through the Executive Committee. CEO is fully empowered to achieve annual objectives.

6. Shareholders Board of Directors Executive Committee CEO Sales Marketing & Promotion Market Research Invest BCOrganization Model

7. Investment & Governance $50,000+ Annual Investment Automatic Seat on Executive Committee Logo on Invest BC Website & Materials Meet with Recruited Companies Quarterly Economic Briefing Sponsorship of all Premier Invest BC Events Other Executive Level Benefits $25,000 Annual Investment Automatic Seat on Board of Directors Logo on Invest BC Website & Materials Quarterly Economic Briefing One Sponsorship of Premier Invest BC Event Other Corporate Level Benefits $10,000 Annual Investment Eligible for Board Seat (5 seat reserved) Sponsorship/Advertising Opportunities Invitation to all Premier Invest BC Events Opportunity to serve on Task Forces Special Recognition at Invest BC Events $5,000 Annual Investment Eligible for Board Seat (2 seats reserved) Weekly electronic newsletter Listing in Invest BC Investor Directory Listing on Invest BC website

8. Investment & Governance (con’t) • Three Common Models: • Managed Board: Strong CEO serving as Chair; board; CEO selects board; passive investors. • Directed Board: Strong directors, CEO and Chair positions held separately. Operates independent of CEO and management; significant input in daily management decisions. • Shared Board: Strong outside directors, strong CEO, strong committee structure. Board nominees selected by outside directors with CEO assistance. Board determines its influence, key issues and role. • Recommended Structure: Directors determined by $ investment with a fixed # of seats; Executive Committee (EC) is elected by Board to staggered terms; Executive Committee determines ENDS, CEO determines MEANS. • Suggest government have a voting seat on BOD and a non-voting advisory seat on EC

9. Invest BC Marketing • Two-Fold Strategic Intent: • Quickly elevate Invest BC profile in key business circles, industry targets • Score early employment success • Goal is (1) immediate impact, investor return and (2) identify, grow Year 2-4 investment opportunities. Jobs Now, Jobs Later • Multi-year marketing strategy is best (Yr 1-3) for employment results/investor return. • Suggest annual employment target based population growth, life-expectancy, etc. See Slide 16 for example.

10. Benchmarking Return • CEO’s Year 1-3 objectives are quantitative, qualitative and organizational: • Quantitative: (1) increase new employment annually, suggest this be tiered by salary – annual or hourly - for clear measurement; (2) Increase capital investment annually. Board will determine numerical targets. (3) Organize and execute 8 foreign marketing trips annually, two each quarter, to develop a database of 12 future investments; organize and execute 8 in-country marketing trips annually to develop a database of 12 future investments. Board will define future investment. • Qualitative: (1) design and launch a IBC-controlled marketing website; design and launch a monthly HTML-based consultant newsletter; design and launch a monthly investor newsletter. • Organizational: Stand up Invest BC; develop internal controls and productivity measurement; establish Invest BC’s organizational value in Buffalo City and shareholder value.

11. III. Business Retention

12. Overview • Purpose is to track existing employment to prevent industry-flight and encourage plant expansions. Retention is Preventive Medicine. • Program is vitally important for communities with 20% or more of total workforce employed in two sectors, e.g., automotive and government. • Core practice addresses four goals: • Identify at-risk companies • Intervene with local, provincial, national agencies to avert lay-offs and/or announced closings. • Reduce the impact of lay-offs by providing rapid response services, i.e., re-training assistance, unemployment, etc. • Market the available workforce • Ownership should be public sector, suggest Buffalo City E/D

13. Key Fundamentals • Program begins with a community assessment of resources and long-range economic outlook. • Population Growth (current and future) • % Employed and Unemployed • Per capita income; Poverty level • Loans to deposit ratio; pace of new construction • % industrial occupancy last five years • New business start-ups (3 year measurement) • % sales/property taxes generated from industry • H/S drop out rate • % growth of city public works projects and infrastructure upgrades • % growth/loss of traffic through Port of East London • Purpose is to baseline key economic and industrial indicators for future-year analysis, trend identification.

14. Key Fundamentals (Interview) • Meet bi-annually with key employers (city determines thresh hold). • Results are calculated, analyzed and reported to City Leadership for action • Interview example • Facility staff expanded /declined in last 18 months? • Change in operation hours weekly, monthly? • Regularity of production? • Increase/reduction in plant maintenance? • Increase/reduction in power usage? • Plant or firm acquired or divisions merged? • New plant or equipment installed at other like-product facilities? • Intent is to create picture, pre-empt fixable issues.

15. Indicators & Requirements • Key Requirements • Staff Training: Manager - 89 hrs annual training in retention; Staff – 65 hrs annual training in retention. Cost, including travel, averages $17,000 - $25,000 annually. • Software: Blaine-Canada, the preferred US retention adviser, sells Synchronist, a retention client tracking software for $18,000+. Buffalo City can purchase the South Africa license and sell the program for profit in the Eastern Cape or nationally. • Reporting: An effective retention program will illuminate government’s strengths/weaknesses in service delivery to major customers. Leadership should use the results to prioritize delivery upgrades.

16. Indicators & Requirements (con’t) Indicators: • Demonstrates pro-business attitude to major employers • Provides data for economic development planning • Assist firms in solving local problems that may encourage flight • Early warning of plant closings Success Factors: • Manufacturing focus • Develop written recommendations of priority projects • Manager actively involved in interviews • Use volunteers: meet with firms, establish priorities, author final report

17. Summary • Buffalo City’s development landscape includes a world class Chamber, a global port, the IDZ, the Development Authority and ECDC, to name a few. Each is effective in its sphere, but is weakened by the absence of dedicated marketing and retention programs. • Government must manage retention and the private sector must manage recruitment. The division will leverage the core competencies that each sphere brings to development. • Effective retention will require that BCM Economic Development be reorganized and prioritized as a development agency. Current staff and management are exceptionally talented and experienced. • Effective recruiting will require that business invest in a concept new to South Africa. If the leadership agrees the concept is worth exploring, I am willing to assist it’s construction at no cost. • Buffalo City’s economy will continue to flourish without the suggested actions, but, with increased urban migration, persistent unemployment and development of the Port of Coega, the rate of growth may be inadequate and destabilizing. • Each of the suggested programs is common to other mature economies and will eventually become a staple of the South African economy, as it matures. Buffalo City’s “first to market” advantage is short and will require visionary leadership and courage.