REGIONAL

DEVELOPMENT
TERM DEFINITION

Industrial Development Policies aimed at the encouragement of

policies industrial investment and greater industrial

efficiency.

Industrial development Strategic plans for, or methods of, achieving

strategies industrial policy goals.

TERM DEFINITION

Regional industrial Policies that are aimed at increasing the

development economic livelihood of specific areas or

geographical regions.

Spatial development To attract infrastructure and business

initiative (SDI) investments to neglected and underdeveloped

areas.
TERM DEFINITION

Industrial Development Zone Purpose-built industrial estates that

(IDZ) are physically enclosed and linked to

international port or airports.

Special Economic Zones (SEZs) A geographical area of a country set

aside for specifically targeted

economic activities.
TERM DEFINITION

The Industrial Policy Action Plan A policy and action plan designed to

(IPAP) help build South Africa’s industrial

base in critical sectors of production

and value-added manufacturing.

Public Private Partnership (PPP) Projects where the state provides the

infrastructure and private sector

provides capital to establish a

Briefly describe the concept industrial development.
INDUSTRIAL DEVELOPMENT

• refers to planning for and building new industries

in certain areas, as well as expanding existing

industries in certain areas.

Aim of industrial development

- to increase economic growth

Explain the reasons for industrial development.
- Exploit the world economy to trade and

acquire knowledge.

- Maintain macroeconomic stability.

- Achieve high rates of savings and

investment.
- Establish large scale manufacturing,

agricultural, mining and services production.

- Diversification of the economy.

- Develop domestic manufacturing capacity to

increase exports.
- Create jobs.

- Develop and maintain appropriate incentives

to attract investors.

- Contribute to the industrial development of

the African continent.

Importance / Necessity of industrial

development in South Africa

Generate income

❖ Industries will accommodate thousands of

workers who will receive an income

Boost economic growth

❖ Industrial development will ensure an increase

in the production of goods and services

Importance / Necessity of industrial

development in South Africa

(Continued)

Increase job creation

❖ Labour intensive industries will offer many new

job opportunities

❖ Increase the export of value-added products

Industries can add value to the many natural

resources available in our country

Examples of key sectors to promote

Industrial development

❖ Clothing

❖ Textiles

❖ Automotive sector

- identified as key strategic sectors

Institution that promotes industrial

development

- Department of Trade and Industry (DTI)

Role of the DTI

- provide incentive schemes in order to boost

manufacturing capacity and to support job

creation.
Briefly explain South Africa’s Industrial Development Policies
Industrial development policies

- Are government policies that relate to

manufacturing policies
There are two industrial development

policies:

• National Industrial Policy Framework (NIPF)

• Industrial Policy Action Plan 2 (IPAP 2)

1. National Industrial Policy Framework

(NIPF)

- is a policy setting out the government's broad

strategic approach to industrialisation/industrial

development.
The Aims/objectives of the NIPF

1. To make the economy more diverse so that

exports can increase.

2. To make industrialisation more intensive in the

long run.

3. To promote the development of labour-intensive

industries.
The Aims/objectives of the NIPF

(Continued)

4. Greater participation by disadvantaged groups

and development of marginalised areas.

5. Increase potential for large scale production.

2. Industrial Policy Action Plans (IPAP)

- The industrial development policy that aims at

promoting long-term industrialisation

- IPAP is funded by private investment

The main objective of the IPAP

- to bring about significant structural change to the

South Africa economy

What does the IPAP entail?

- Increasing private investments

- Businesses and labour are consulted intensively.

- supports local procurement.

- supports local industries and job creation.

How will the objectives of the IPAP be

achieved?

- Stronger domestic growth in the manufacturing

sector.

- High employment levels

The reason why the IPAP was designed

- to increase industrialisation in the manufacturing

sector.
How can IPAP “beef” up competition
policies?

- By strengthening the role of the competition

authorities in relation to private sector behaviour.

- Interventions across institutions must be geared

to monitor conduct of dominant private firms.

- IPAP must ensure that firms’ strategies do not

exploit market power.

- New firms that enter the market must be

supported.
Targeted industries

❖ Advanced manufacturing

❖ Tourism

❖ Software industries (for computers)

❖ Airspace and defence etc.

(check p237-238 ENJOY ECONOMICS) for

additional examples)
Evaluate IPAP’s success in attaining

job creation.

- Small business development - specific

government programmes were successful.

- The promotion of entrepreneurship (amongst

women and youth) has been reasonably

successful.
Evaluate IPAP’s success in attaining

job creation.

- Improved access to finance and capital,

information and advice has been reasonably

successful.

- Unemployment figures in South Africa are still

very high.
Briefly explain the Industrial Development Strategies
There are two Industrial Development

Strategies :

1. Integrated Manufacturing Strategy (IMS)

2. National Research and Development

Strategy (NRDS)
1. The Integrated Manufacturing
Strategy (IMS)
- focuses on developing the global
competitiveness of S.A. manufacturing
enterprises

- applies to all processes that transforms

natural products into manufactured products

- involves cross-cutting issues such as

technology, human resource development,
access to finance and infrastructure
1. The Integrated Manufacturing
Strategy (IMS) (Continued)
- concentrates on key input sectors like
transport, telecommunications and energy

- prioritises certain growth in sectors like

tourism, agriculture, information technology
and cultural industries

- It is Implemented by the DTI

Growth sectors identified include:

- Exports

- Tourism

- Agriculture

- Information Technology and Communication

- Cultural
2. National Research and Development

Strategy (NRDS)

- Not a specific tool but integrated within other

policies and actions

Outline the aims of regional development.
REGIONAL DEVELOPMENT
REGIONAL DEVELOPMENT

- refers to policies aimed at increasing the

economic livelihood of specific areas or regions.

- Regional development initiatives in South Africa

are to attract infrastructure and business

investments to neglected and underdeveloped

areas.
Aims of regional development

❖ Reduce unequal development of economic

activities within the country

❖ To stimulate development in poorer areas

❖ To implement and coordinate the implementation of

national and regional industrial policies

❖ To prevent new imbalances from emerging

Regional development in South Africa

- An estimated 80% of the country’s GDP is

produced in four industrialised areas, namely:

❖ Johannesburg-Pretoria-Tshwane

❖ Durban-Pinetown

❖ Cape Town metropole

❖ Port Elizabeth-Coega-Uitenhage
Reasons for the uneven geographical

economic development

- Unequal spending on regional development

- Uneven distribution of economic resources, such

as natural resources and skilled workforce

SOUTH AFRICA’S ENDEAVOURS
Discuss in detail South Africa’s initiatives (Endeavours)

in regional development:

❖ Spatial Development Initiatives (SDIs)

❖ Corridors

❖ Industrial Development Zones (IDZ)

❖ Special Economic Zones (SEZ)

1. Spatial Development Initiatives

(SDIs) in South Africa

- can be defined as a link between important

economic hubs and regions in a country

- It is a policy to promote sustainable industrial

development in areas where poverty and

unemployment are at their highest.

Objectives of SDIs

❖ Create employment and stimulate economic

growth in the underdeveloped areas

❖ Develop physical infrastructure such as roads

and harbours

❖ Stimulate economic activities in the

underdeveloped areas
Objectives of SDIs (Continued)

- Develop inherent economic potential in the

under developed areas

- Attract private sector and foreign direct (FDI)

investment

- Establish Public Private Partnerships (PPP)

• Name the various spatial initiatives (SDI,

corridors).

• Indicate/Identify them on a map of SA.

SDI ECONOMIC AREA

KwaZulu-Natal SDI Industrial

Wild coast SDI Agri-tourism

Fish River SDI Industrial

West Coast Investment Industrials and agri-processing

Initiative

Coast to coast Corridor Transport and Tourism

Platinum SDI Mining and agri-tourism

SDI ECONOMIC AREA

Phalaborwa SDI Industrial and agri-tourism

Gauteng Special Economic Information technology,

Zone telecommunications

Maputo Development Industrial and agri-processing

Corridor

Lubombo SDI Agri-tourism

Richards Bay Initiative Mining, industrial and agri-processing

 Financial incentives for SDIs:

Duty-free incentives - duty-free import of raw materials or

intermediate goods.

Small and Medium Enterprise Development Programme -

support operations

Skills support programme - tax-free grants for skills

development.

Critical infrastructure programme - cash grant to build or

expand physical infrastructure.

Foreign investment grants - cash grant to foreign

companies that want to invest in new manufacturing
businesses.
The importance of public-private

partnerships in SDIs

❖ It allows for private sector businesses to take

advantage of the economic potential of

underdeveloped areas.

❖ The private business may provide investment

capital, while government provides infrastructure

such as roads water and electricity

The importance of public-private
partnerships in SDIs (Continued)

❖ More factors of production will be employed as

more investments will be attracted

❖ Businesses benefit from profits and government

benefits from taxes, levies and decreased
unemployment

❖ Allows moving towards international

competitiveness, regional cooperation and more
diverse ownership base
2. Corridors

- A corridor is a track of land that forms a

passageway allowing access from one area to
another

- It also forms part of an SDI

- e.g. Maputo corridor that starts in Gauteng and

extends through Mpumalanga to the Maputo port
2. Corridors (Continued)

- Corridors link one area to another and offers

advantages to mining, manufacturing and other
businesses

- The advantages also include the presence of

existing infrastructure and the specialisation of
products or services
3. Industrial Development Zones
(IDZ)

- are purpose-built industrial estates that are

physically enclosed and linked to an
international port or airport e.g. Coega.

- Businesses are encouraged to open in IDZs

by being offered improved tax rates or
incentives
IDZs (Continued)

- Are designed to encourage international competitiveness

in the SA manufacturing sector

- aimed at making exports internationally competitive

- focus on creating jobs and promoting exports

- Businesses develop around the IDZs (e.g., banking,

personnel, insurance, auditing, IT, communication,

accommodation, catering, shopping, transport)

IDZs (Continued)

- offer world-class infrastructure

- enjoy a zero rate of VAT on supplies from South

African sources and reduced taxation on some
products, government incentives and access to
latest information

- IDZs fall outside domestic customs zones and

therefore able to import items free of customs
and trade restrictions, add value, and then
exports their goods
Examples

• Coega - steel and auto components

• OR Tambo International Airport - high tech

industries

• East London - vehicles

• Richards Bay - metals.

• Mafikeng IDZ - agro-processing, oil seeds and

bio fuels

• Saldanha Bay - Steel

Evaluation of IDZs

IDZs successes were relatively small:

❖ Investment levels have been relatively low

❖ The number of permanent jobs created were small

❖ Businesses within the IDZ did not receive special

incentives despite promises that businesses in the

zone would receive some form of tax and VAT

relief relating to imports and exports

Evaluation of IDZs (Continued)

❖ Only regions with access to an international airport

or seaport were eligible for support

❖ Government acknowledged that IDZs were not a

success in South Africa - only two out of nine

concessions, namely, conditional exception from

import taxes and zero VAT rates, were applied

4. Special Economic Zones (SEZ)

- are geographically demarcated areas where

specific economic activities have been

identified to be developed.

- have a wider industrial development objective

- can be located anywhere to promote cluster

development
4. SEZs (Continued)

- enjoy incentives such as tax relief and support

systems to promote industrial development.

- create a basis for a broader range of

industrial parks.

- provide economic infrastructure to enable the

effective clustering of value-adding and
employment-enhancing manufacturers.
4. Aims of SEZs

- Promote rapid development by acting as a

magnet for investment in key growth areas.

- Enable the development of new industrial

regions through the establishment of new
industrial hubs in under-developed regions
and the strengthening of existing one.

- are used for the purposes such as export

promotion, enterprise development, urban
renewal, rural development and domestic or
regional production.
SEZs can benefit the economy by:

❖ attracting new businesses (tax incentives) /

investment

❖ assisting businesses that establish new products

lines and expand their operations

❖ creating more employment for the people in their

neighbourhood

❖ increasing productivity and economic growth

❖ promoting more effective use of resources

❖ focusing on both domestic production and exports

How can SEZs contribute to regional
development?
- The government uses specifically to promote the
creation of a regionally diversified industrial
economy
- By establishing new industrial hubs in
underdeveloped regions of the country
- SEZs are crucial for government's strategic
objectives of industrialisation, regional
development and job creation
How can SEZs contribute to regional
development?
- improve South Africa's attractiveness as a
destination for FDI as well as domestic
investment
- SEZ’s accommodates both domestic and
foreign markets for goods and services
- Because of a special tax incentive, more
industries are established
SEZs in South Africa
❖ Coega SEZ (Eastern Cape)
❖ Richards Bay SEZ (KZN)
❖ East London SEZ (Eastern Cape)
❖ Saldanha Bay SEZ (Western Cape)
❖ Dube Trade port SEZ (KZN)
❖ Maluti-a-phofung SEZ (Free State)
❖ OR Tambo IDZ (Gauteng)
❖ Musina/Makhado SEZ (Limpopo)
❖ Atlantis SEZ (Western Cape)
❖ Nkomazi SEZ (Mpumalanga)
❖ Tshwane Automotive SEZ
INCENTIVES TO ENCOURAGE INDUSTRIAL DEVELOPMENT
Briefly discuss the incentives used by the SA government to
improve industrial development.
1. Small Businesses Support Program

- is a government initiative to assist the SMME’s

in the economy to begin operating or to
expand.

- Grants are given to SMME’s with total assets

under R100 million.

- A variety of industries are eligible for these

grants, ranging from manufacturing and
tourism to agriculture.

- Grants are given for a maximum of three

years.
2. Seda Technology Program (STP)

- was created as part of government’s national

strategy of consolidating and rationalising
small enterprise support interventions across
the different government departments and
government agencies

- The overall objective was to improve the

delivery of small business support services to
entrepreneurs and small enterprises.
3. Skills Support Program (SSP)
- The main objective of the Skills Support
Programme is to encourage greater investment in
training.
- This incentive is provided as a tax-free cash
grant for skills development.
- It is aimed at providing investment in training and
skills development to gain new expertise.
- A maximum of 50% of a company’s training costs
are covered.
- The grant is provided for three years
4. Critical Infrastructure Programme
(CIP)
- is a cash grant provided to build or expand physical
infrastructure e.g. roads, railways, electricity and
water supply
- Grants of up to 30% of the cost of infrastructure can
be obtained.
- It becomes available on completion of the project.
- It extends to both the public sector
(e.g. municipalities) and private sector
(companies).
- The goal is to get companies to invest in various
locations that are usually not very attractive (e.g.
rural areas) so as to stimulate the area’s economy.
1. Strategic Integrated Projects (SIPs)

- Integration of economic and social infrastructure projects in the country.

- There are currently 17 designated projects identified.

- The Strategic Integrated Projects main objective is to identify and implement projects

to achieve the provisioning of infrastructure.

5. Custom free incentives
- are aimed at export orientated manufacturing

businesses that operate in the IDZs and SEZs.

- Duty-free imports on intermediate products that

will be used in the IDZ to produce other final

goods.
6. Foreign investment grant/ incentives
(FIG)
- cash incentives allocated to foreign companies
that wish to invest in new manufacturing
businesses in S.A.
- The grant covers 15% to maximum of R3 million
to the costs of moving equipment and machinery
into South Africa.
- The goal of this incentive is to increase foreign
investment and technologies in the country
7. Strategic Investment Program

- Cash incentives for businesses in information

technology
8. Services to Business Process
- aims to attract investment and create employment in

South Africa through off-shore activities.

- A base incentive as a tax exempt grant is paid over three

years for each offshore job created and maintained.

Services to Business Process
(Continued)

A graduated bonus incentive is paid

as follows:
- 20% bonus for more than 4 000 but less than 8
000 offshore jobs, paid once off in a year in
which the bonus is reached
- 30% bonus for more than 8 000 offshore jobs
paid once off in the year in which the bonus
level is reached
Why does the government offer
these financial incentives?

- Establish new businesses.

- Involve domestic and foreign businesses in

the government‘s SDIs.

- Promote industrial development

- Promote employment creation programmes

- Established sustainable businesses that will

be able to compete locally and internationally.
APPROPRIATENESS OF SOUTH AFRICA’S INDUSTRIAL
POLICIES.
Outline the appropriateness of South Africa’s industrial
policies.
GEAR

- did not do enough to promote development and an

increase in economic growth did not occur.

ASGISA

- policy was not successful in the main aim of

reducing unemployment and increasing skills.

The New Growth Path

- has not seen any decrease in the number of people

who are unemployed.

The National Industrial Policy Framework
- is an appropriate policy within best practice, but is
hindered by an unemployment problem.
IDZs
- growth has been very slow.
- The incentives offered were not attractive enough.
- Investors have not been attracted to Gauteng and
Saldanha Bay as expected.
SDIs
- the growth rate is lower than expected despite the
huge amount spent on improvement on
infrastructure in the SDIs.
- The main aim of creating employment has not
been achieved.
Outline the appropriateness of South Africa’s
industrial policies. (Continued)
- Regional development is still uneven, concentrated
mainly in the four metropolitan areas.
- Workers still have to move to where employment is.
- Small business development - specific government
programmes were successful.
- The promotion of entrepreneurship (amongst women
and youth) have been reasonably successful.
- Improved access to finance and capital, information
and advice have been reasonably successful.
APPROPRIATENESS OF SOUTH AFRICA’S REGIONAL DEVELOPMENT
POLICIES IN TERMS OF BENCHMARK CRITERIA
Briefly discuss regional development in terms of the
following benchmark criteria:
❖ Free market orientation
❖ Competitiveness
❖ Sustainability
❖ Good governance
❖ Provisioning of resources
❖ Investment of social capital
❖ Integration
❖ Partnerships
1. Free Market Orientation

- Government intervention must be minimised in the

market so that the force of supply and demand and

the profit motive ensures the effective allocation of

resources.
2. Competitiveness

- Companies are more focused, innovative and

effective if strong competition is present.

- This improves the overall quality of the

manufactured products.

- As with technological advancement, high quality

products can more easily be exported and compete

on an international level.
3. Sustainability

- The region must support its own development and

the natural and human resources of the region

must be used to ensure employment and

sustainable development.
4. Good governance

- Regional development must be managed effectively

and free of corruption.

- The principles of accountability and transparency

must be applied to ensure financial control.

- Projects must be programmed, monitored and

evaluated correctly.
5. Provision of resources

- Sufficient resources should be provided in

resource-poor areas, e.g. infrastructure

6. Investment in Human capital / social capital

- This is of critical importance; as skilled employees

are more productive than unskilled ones.

- By investing in human capital, a country is assured

of having long-term economic growth.

- Governments must improve the quality of education

and health care in a region

7. Integration

- Will ensure that the benefits of one region spill

over to other industries and areas.

8. Partnerships

- Regional development is the responsibility of

different stakeholders.

- Partnerships between the central government, local

government, civil society, special interest groups,

NGOs and the private sector must be formed.

Briefly evaluate South Africa’s regional development

policies in terms of the above benchmarks.

SMALL BUSINESS DEVELOPMENT
Small business development policies
The DTI has various programmes in place to support
SMMEs:
- The creation of employment for structurally
unemployed people.
- Focus is on incentives for small businesses.
- Providing easier access to capital, information,
business advice.
- Promotion of entrepreneurial development among
women and the youth.
Institution that promotes small businesses

❖ Small Enterprise Development Agency / SEDA

❖ Small Enterprise Finance Agency / (SEFA)

How can small, medium and micro enterprises

(SMMEs) contribute to economic growth and

development?
- More job opportunities will be created in both the

formal and informal sector resulting in more sources

of income

- Increase in the aggregate demand will lead to higher

production levels
- Competition will increase, resulting in lower prices

for goods and services

- Tax revenue for the government will increase,

leading to more social expenditure on the poor

- Surplus products will be exported, and foreign

currency will be earned to pay for imported inputs.

- Government support to create programs for the

training of workers
THE APPROPRIATENESS OF BLACK ECONOMIC
EMPOWERMENT IN THE SOUTH AFRICAN ECONOMY
BBBEE

- is in line with the empowerment of indigenous people in

developing countries.

- It is in line with the UN and World Bank development

initiative of indigenous people in a country.

Evaluation of BBBEE
Successes
❖ Implementation of this strategy empowers the

country's indigenous people as prescribed by the

United Nations and World Bank development

initiative

❖ Black-owned enterprises benefit from the

government's preferential procurement policies

where adhering to the DTI scorecard is essential

Successes

❖ It provided access to capital and training of

potential black entrepreneurs focusing on the

empowerment of black women

❖ There was a substantial change in the racial

composition of ownership and management

structures of many businesses

Successes

❖ Political stability was achieved in correcting the

inequalities of the past and stimulation of

participation of disadvantaged groups in the

economy
 Failures

❖The majority of the disadvantaged people of this

country have not fully benefitted from the policy as

poverty and unemployment is still increasing

 Failures

❖Firms with poor BBBEE scores are unlikely to partake

in government contracts although they employ a large

percentage of black people, impacting negatively on

other black owned companies

❖Tenders are awarded through preferential

procurement, cost the government more due to

outsourcing (because they are not involved in the

provision of the goods and services, the quality is

compromised)

❖fraud - where payment for tenders have been

honoured without any product or service delivery

❖Fraud such as fake BEE certification,

misrepresentations to government departments,

failure to issue share certificates and theft

❖The redistribution of wealth was emphasised and

has not promote economic growth