PAPERS

The Limpopo LED Programme has been involved in a number of initiatives to stimulate debate on key public policy issues. They include:

Delegates to a Limpopo LED Programme workshop called to discuss studies on key public policy issues.

 * Support for a major international conference in
    Polokwane on the role of the developmental
    state.

 * The commissioning of three studies on:
   - Land reform and restitution in Limpopo;
   - Limpopo's economic competitiveness; and
   - Limpopo's informal trading sector.

Following are summaries of the main findings and conclusions of these initiatives.

THE DEVELOPMENTAL STATE

How The State Can Play An Effective Role In South Africa's Development.

An international conference held in Polokwane as identified key steps South Africa needs to take to become a successful developmental state.

Based on the theme, "South Africa as a Developmental State: Challenges and Opportunities", the conference brought together  South African and international social and economic development specialists who analysed lessons to be learned from the experiences of Asian nations in which the State played a pivotal  developmental role.

The conference was held under the auspices of the national Department of Provincial and Local Government with support from the Limpopo Department of Local Government and Housing, the European Union, which is funding the Limpopo Local Economic Development (LED) Programme, and Eurecna, the implementing agency of the programme.

Papers were presented on various roles the State has played in India and South Korea, Brazil and Malaysia. In addition, a paper was presented on the huge developmental challenge being faced by African nations.

The conference adds to the growing debate over the role of the State in South Africa as the new government under President Jacob Zuma maps out its policies on the country's social and economic development.

A contextual position paper presented at the conference noted that the concept of the developmental state is associated with the successful economic growth of countries in eastern Asia and specifically Japan, Korea, Taiwan, Hong Kong and Taiwan.

"These countries exhibited high and sustained growth in the 1950s and 1960s, changing not only their absolute standards of living but their standing relative to other newly industrialising countries," says the paper. "There has been some attempt to emulate this success in other states of Asia, Africa, and Latin America, with mixed success."

The paper concludes that South Africa needs to do more than simply copy other examples of developmental states. "Rather, it is important to learn the lessons of other countries' successes and failures, recognise the changing environment, and identify ways of coping with the new challenges which South Africa faces." The paper identifies a number of factors of key importance in South Africa:

* The development of administrative capacity at all levels and the clarification of the structure, powers and responsibilities of the different levels.

* Centralisation of power to encourage local economic development.

* Development entails long-term planning and consistency of approach.

* Addressing inequality, both geographically and on an ethnic basis. Making South Africa a more equal society could in itself enhance economic growth.

* Planning needs to take into account the increase in globalisation and the importance of the service sector. State support needs to go to smaller businesses at a local level and needs to provide the appropriate environment for foreign direct investment (FDI).

* Competitiveness in the global economy and balanced economic development will require a reorientation of South Africa's economy away from mining and mining-related services and towards less traditional exports.

* Attraction of appropriate FDI needs to be planned in a framework which makes the most of opportunities for regional and skills development and technology transfer.

NEW STUDIES RAISE ALARMS AND CHALLENGES FOR LIMPOPO

Groundbreaking research on Limpopo has concluded that the landrestitution process in the province is approaching crisis point.

It has also raised serious concerns about Limpopo's economic competitiveness and ability to attract investment, and challengedthe province to view informal traders as an asset.

The findings are contained in three studies undertaken on behalf of the European Commission by the UK-based Agrisystems Consortium in collaboration with its South African local partner, Sustained Livelihood Consultants which is led by development economist Dr Andrew Charman.

The studies will be used by the Limpopo Local Economic Development (LED) Centre as a platform for further research and training of LED practitioners.

The Centre is being supported by funding from the European Union, with the Limpopo Provincial Government's Department of Local Government & Housing being the implementing authority in partnership with the University of Limpopo.

The studies focus on land reform, the informal sector, and competitiveness. However, the researchers urge that the studies should not be treated as separate subjects but rather as closely inter-related issues. Without successful land reform and sustained agricultural production, explains Charman, the informal sector will suffer because it procures much of its produce from commercial farmers. Conversely, the formal agricultural sector would be impacted adversely by a decline in informal trading. And without a strong agricultural economy, Limpopo would find it even harder to become competitive.

Limpopo LED practitioners and the team who have compiled challenging studies on land reform, informal traders and competitiveness. (Seated, from left) David Wood, team leader of the Limpopo LED Programme; Alfred Netshifhefhe, senior manager for LED in the Limpopo Department of Local Government & Housing; Andrew Charman, leader of the research team; and Chris Burman, head of the Limpopo Centre for LED. (Standing, from left) Gerhard Pienaar, LED project officer in the EU Delegation to the European Commission in SA; and researchers Red Mery, Leif Petersen, Fuad Cassim, Glen Steyn, Jimmy Mabela, Andrew Hartnack and Phillemon Manavhela. Standing fourth from right is Chris Gilmore, representing the national Department of Provincial and Local Government.

The studies were well received and researchers were complimented on their thoroughness.

Government LED officials and practitioners who attended a workshop where three major studies were presented.

LAND REFORM

The current approach to land restitution in Limpopo is nearing crisis point, the research concludes. Land restitution has neither achieved its political objectives nor resulted in a favourable economic outcome.

Government aims to transfer 30% of commercial farmland in South Africa to black farmers by 2014. In Limpopo, 61% of commercial farms have been claimed for restitution.

However, the land reform process has proceeded slowly in Limpopo. By 2008 the Department of Land Affairs had transferred only 3% of the land area to land reform beneficiaries. The gradual pace of land reform has negatively impacted on the agricultural sector as delays have given rise to uncertainty, thus undermining long term investment.

Although the government has put considerable resources into creating a black farming class, there are concerns that these emerging farmers still lack the capacity, skills and know-how to
farm commercially.

Despite these set-backs, the reform programme has achieved some success, most notably in the public-private partnerships between Communal Property Associations, who represent land reform
beneficiaries, and strategic agri-business partners. These ventures have been positively endorsed as a practical means to achieve government's policy objectives. However, the research finds that:

* The cost of land restitution has become far greater than anticipated. National government estimated in 2008 that the cost of completing land restitution would be R10,6 billion. It has allocated R6 billion to the land restitution process for the period 2007/08-2010/11. The cost of purchasing the remaining 2 183 852 hectares under land claim in Limpopo at current market prices would be about R25,9 billion. However. there are simply insufficient funds available to complete land purchases in Limpopo.

* The "hectare-driven" approach to land restitution could profoundly undermine agricultural output and revenue. The horticulture sector in Limpopo accounts for 62% of farm income. The bulk of this production is undertaken on 304 450 hectares, equal to about 0,02% of the total land area. This high potential land sustains the bulk of the province's export-oriented agricultural production in citrus and sub-tropical fruit. This land should be seen as a strategic asset which the government should ensure remains profitably farmed. However, almost 40% of this land is under claim and in some districts, such as Mopani, 90% has been claimed. The government should therefore re-consider whether acquiring land under restitution is an appropriate approach to ensure the continuity of production in these high productive areas or whether other instruments of the land restitution policy, such as financial compensation, would not better serve the overarching objectives.

* Strategic partnerships have the potential to maintain high levels of commercial output, but this can only be achieved if government transfers both the land assets and post-settlement grants to restitution beneficiaries represented by their Communal Property Associations. Without these grants, strategic partners may prove unable to leverage capital, and communities will be unable to secure equity in joint operating enterprises, thus gaining little benefit from their empowerment.

Among serious concerns raised by the research are:

* The institutions responsible for land reform are still struggling to adequately support land claimants to advance in strategic partnerships. The tardy release of grants to land reform beneficiaries and delayed completion of elementary legal procedures has characterised restitution projects. Government is falling behind its commitment to public-private collaboration and
co-operation.

* Local and district municipalities appear to provide next to no support for land reform projects. Despite a new policy direction in which they are expected to play a supportive role, they are not yet becoming meaningfully involved with planning for or assisting in the implementation of land reform projects at a local level.

* Communal Property Associations have little capacity to partake as equal partners in complex agricultural enterprise operations. In the short term, this constraint may affect the scale of benefits they derive and their ability to run successful community initiatives. In the long term, their power to influence enterprise decisions will progressively increase, as long as their capacity
is steadily enhanced.

* Land reform policy has increasingly emphasised the role of local government as an implementing agent. This process needs to acknowledge that most land restitution beneficiaries do not intend to be farm labourers nor to live on a farm under paternalist control.

The Moletele community in the Hoedspruit area is one of a number of Limpopo communities which have taken on strategic partners to help them to develop restituted land. (Front, from left) Members of the Moletele Communal Property Association (CPA): secretary Ellen Chiloane; chairperson Thandios Mashile; and community representative Hudson Malebe (Back, from left): James Thrush who is conducting a capacity building programme to enable the CPA to play its role in the partnership; and leading farmer Mike Scott, the CPA's strategic partner. Scott is the former owner of some of the landsuccessfully claimed by the Moletele community

The findings of the three studies were presented to key stakeholders at a workshop training event held in Magoebaskloof. The workshop was attended by 42 people representing local government, the Department of Land Affairs, the Department of Agriculture, the EC Delegation, the Limpopo LED Programme Management Unit and the Limpopo LED Centre.

THE INFORMAL SECTOR

Contrary to conventional wisdom, South Africa does not have two disparate economies: a formal 1st economy and an informal 2nd economy that seemingly operate independently of each other, with the one thriving and the other merely surviving.

Extensive research undertaken in Limpopo shows that the informal economy is not disconnected from the formal economy; that they are in fact inter-dependent, with the one feeding off the other. However, an essential difference between them is that they function according to different entrepreneurial rules.

Researchers estimate that 273 000 people are actively working in Limpopo's informal sector. Some 46% are engaged in trade.

Approximately 100 000 business owners support a minimum of 400 000 family members in addition to themselves, indicating that some 500 000 livelihoods are supported through informal trading in Limpopo.

A total of 40% of traders' households receive some form of government grant, and 20% of households have other means of income. The study   therefore   deduces   that   approximately
200 000 livelihoods are supported on income derived solely from informal trading.

The survey found that:

* Businesses operating in the informal economy display a high level of sustainability. Individuals have generally been in business for an average of 6,6 years among street traders and 16,8 years among rural fruit traders. This indicates that informal enterprises offer considerable opportunities for entrepreneurship, stable self-employment and sustainable livelihoods.

* While the informal economy creates sustainable opportunities for self-employment, it creates few jobs.

* The informal economy is not disconnected from the formal economy, but functions according to different entrepreneurial rules. While micro-entrepreneurs trade informally, this in itself should not imply that traders cannot run profitable and sustainable enterprises or have a desire to formalise their businesses. It cannot, therefore, be assumed that self-employed people are temporary participants within the informal economy and will leave if they have the opportunity to be formally employed. In many cases the reverse is true.

* Informal traders buy a large percentage of their goods from the formal sector.

* Informal traders do not only serve the marginalised poor, but sell their goods and provide services to formally employed workers and middle income classes. The informal economy in Limpopo provides an important means for the transfer of wealth from the rich to the poor.

* Many informal entrepreneurs earn in excess of R100 000 a year. Typically about 50% of this is profit. The majority of informal street traders earn considerably in excess of the minimum wage
rate for unskilled workers in the formal sector.

The study recommends authorities should create enabling environments taking into account that informal enterprises are an asset to the greater economy, even if they do not contribute directly to the national or provincial fiscus. Their role in supporting livelihoods and LED is significant and these enterprises should not be seen as survivalist or transitory.

Local municipality strategies should include:

* Formal recognition of traders as entrepreneurs. This will pave the way for their inclusion in broader municipal policy planning.

* Broadening opportunities for informal traders.

* Sustainable provision of services to informal enterprises. Services such as water provision, toilets and goods storage are common requirements for street traders and could help to create a more enabling environment for street trading.

COMPETITIVENESS

Limpopo is lagging behind in competitiveness. Growing evidence indicates that competitive economies will grow faster and be more successful in reducing poverty. Competitiveness underpins economic productivity and the capacity to create wealth, and productivity results in prosperity.

Government's primary role is to support businesses to become more productive through investing in infrastructure, instituting funding programmes, attracting new investment, supporting and enhancing the capacity of institutions to conduct R&D, funding skills training, and ensuring the delivery of basic services inprimary health, education, security and the supply of utilities.

In order to assess Limpopo's level of competitiveness, researchers designed, developed and applied a benchmarking tool-kit based on best practice in measuring competitiveness at the enterprise level, the cluster level and the area level.

They then used the tool kit to assess the competitiveness of enterprises within the beef value chain of Limpopo's red and white meat cluster which is one of seven core provincial economic clusters in which the provincial government is aiming to create conditions conducive to greater private sector investment and added-value activities.

The other clusters are platinum mining; coal mining and the development of a petrochemical cluster in the Waterberg coal field around Lephalale in western Limpopo; fruit and vegetable
production and processing; forestry; tourism based on eight sub-clusters; and a logistics hub based in Polokwane.

The study also assessed the competitiveness of Limpopo against the national context.

Regarding the beef value chain, the study found that commericla production has declined and that the future competitiveness of the cluster will depend on the extent to which emerging farmers are able to become competitive and meet the market requirements of feedlots and abattoirs. Throughout the cluster there is poor technological readiness, little innovation, and relatively unsophisticated management systems.

The study also found that Limpopo lags behind South Africa in most basic drivers, such as health and education, while the weakness of efficiency enhancers, such as infrastructure, and innovation drivers, such as technology, hinder productivity and, hence,prosperity.

In the South African context, Limpopo's competitive advantages lie in its lower incidence of crime and HIV/AIDs, and labour market flexibility.

However, these advantages are largely off-set by poor education levels, low investment in higher skills and training, inadequate basic infrastructure, and low technology readiness.

Limpopo is therefore unlikely at this stage to encourage investment in tradable goods (especially in the manufacturing sector) and will most likely only secure investment in factor-driven enterprises, such as mining.

Researchers recommend that the Limpopo Centre for LED should use the benchmarking tool-kit to develop a detailed training manual that can be used by authorities and stakeholders to assess competitiveness at various levels and to identify and remedy shortcomings.