Local economic development: a review assessment of its current status in south africa

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Published in: Nel, E.L., 2001 Urban Studies, 38, 7, 1003-1024.

(for SA Cities – 9/11/02)

By mobilising the resources of urban communities, government and the private sector we can make our cities centres of opportunity for all South Africans, and competitive within the world economy. The success of this will depend on the initiative taken by urban residents to build their local authorities and promote local economic development (Mandela, 1995, p.5).

In recent years Local Economic Development (LED) has become a widely practised development strategy in the countries of the North at both the local government and community levels. LED is less widely implemented in the South where, in most instances, it appears to still be in an incipient phase. This paper investigates the current status of LED in South Africa, where, over the last decade, local governments, community groups and non-governmental organizations (NGO) have become significantly more active in locality based economic development. Several local governments have established comprehensive LED programmes including the establishment of LED units and the pursuit of a range of developmental strategies, whilst in parallel, an array of community and NGO initiatives are in place. In almost all cases however results are still of a rather limited nature and this paper assesses of the reasons for this situation.

South Africa’s remarkable political rebirth in the 1990s rightly captured world attention and admiration for the phenomenal process of reconciliation and nation building which took place. Less well known internationally is the severity of the economic and employment crisis which South Africa has inherited. Officially, unemployment stands at nearly 40%, although figures of up to 80% have been recorded in certain rural districts. Inherited racially-based inequalities still largely persist, whilst the country has not attracted the amount of foreign investment hoped hope, instead. It is estimated that nearly one million jobs were lost in the 1990s, as a result of poor economic performance, global competition and deindustrialisation, which affected the gold mining industry particularly severely (Lester et al , 2000; Wakeford, 2000). Within this context a variety of employment generating strategies are being investigated and experimented with by the state and private organizations. One which has enjoyed considerable attention, though it has yet to really prove itself in practise is that of Local Economic Development (LED). This paper details and assesses the emerging reality of LED in South Africa.

The development strategy of Local Economic Development or LED has been widely practised in the countries of the North for several decades now. In the South, by contrast, in a formal sense, it appears to be a relatively recent phenomenon and one, which in an era of economic crisis needs to be evaluated in terms of its potential to help address the challenges of poverty and unemployment and to simultaneously encourage growth. Reasons for the emergence of LED in the North and the South differ as detailed below.
In the countries of the North, although there have been elements of place marketing and boosterism evident in local government policy for many decades (Ward, 1990; Erie, 1992), it would seem that in the last 20 to 30 years the incidence of LED has become more prolific. This is not only in terms of local government action, but also the activities of central governments seeking to catalyse growth at the local level and the endeavours of various community development organizations striving to improve economic and social conditions within specific neighbourhoods (Rich, 1992, Wilson, 1996a). The importance of the so-called ‘rolling-back of the frontiers of the state’ (Roberts, 1993, p.759) after the 1970s economic crises, the pursuit of ‘Reaganomics’ and ‘Thatcherism’, the dubious results achieved by traditional, regional development interventions and the widespread incidence of locality specific crises of deindustrialization have all played their part (Nel, 1999). LED is one response to the so-called ‘development impasse’ referred to by Schuurman (1993) and has parallels with the anti-development argument about the need to focus on innovative grassroots movements (Escobar, 1995). The action of various community economic development initiatives exist in parallel with the more formalised local government and private sector initiatives (Lenzi, 1996; Haughton, 1997; Reed, 1999) The rise of LED partially accords with post-modern concepts of unique local action, as has been outlined in the writings of the Localities School (Carter et al, 1993, Page, 1996, Wilson, 1996b). According to Demaziere (1996, p. xv) “LED literature illustrates the decline of grand theory, and the use of more partial, post-modern, methodologies”. The net result is that “... cities are adapting to restructuring and globalization trends with a range of policy choices unanticipated by scholars and unheard just a few years ago” (Clarke and Gaile, 1998, p. 1).
In the South, LED is gradually emerging as a result of reasons not dissimilar to those in the North. To the list of causes must however be added the considerations of the debt crisis, the effective inability of many states to intervene at the local-level, imposed structural adjustment, massive currency devaluation and the series of natural and political shocks which continually shake the region (Taylor and Mackenzie, 1992) . Despite these realities, LED in the formal ‘northern’ sense, does not appear to be as widespread as one would imagine. Reviews of the status of LED within local government areas in the South indicate that formal LED, as opposed to community-based variations, is still in its infancy and few local governments or other agencies can be said to be actively engaged in LED at present (Rogerson, 1995a, 1997; 1999a; Manuel, 1998). The process of democraticization in the South, moves to decentralise control and the state’s attempts to bring about development not so much through direct intervention, but rather through facilitation of the private sector are all gaining in prominence and will assist the LED process. One should not however ignore the widespread reliance within societies in the South on Indigenous Technical Knowledge (Binns, 1994), the importance of local coping or self-reliance strategies within villages and communities and the dependence on the informal sector by many millions. Though not LED in the strict Northern interpretation of the concept, in countries where the government lacks the resources and staff to intervene effectively within local areas, communities, often with the support of non-governmental organizations, have had to become more self-reliant in order to survive economically (Burkey, 1993; Binns and Nel, 1999). Hence, in many ways, the emergence or re-emergence of the informal sector, communal farming and various forms of community survival can be seen as a rough Southern equivalent of LED. These issues, though not a specific focus of this paper, have been examined elsewhere (Binns and Nel, 1999) and need to be borne in mind in any analysis of current development trends in the South, particular in the light of the constraints on government to intervene within local areas.
As South Africa shares similarities with both the North and the South economically, it is inevitable that LED is experienced in forms ranging from urban entrepreneurialism to rural survival strategies. However, as evidence detailed below reveals, in many cases, LED is in its early stages, government and local governments are often still in the first phases of policy development and application and it would be difficult to claim that significant, concrete results have been achieved to date. Community initiatives though often well established, do not received significant policy support at present. After a brief overview of the concept of LED below, the discussion will proceed to an investigation and evaluation of what is happening in South African cities and towns.

LED is not a new phenomenon, it has been a defined aspect of local government administration in the North for over a century (Ward, 1990). What is new is the increasing incidence of such activity, its growing acceptability and the parallel increase in the importance of various NGO and community based development initiatives. The enhanced status of the locality in the global economy and the importance of local decision making and democracy have accelerated this trend. Variously referred to as self-reliance, local-coping, endogenous or bottom- up development and LED (Taylor and Mackenzie, 1992; Binns, 1995), the phenomenon defies both rigid definition or stereo-typing as to what precisely it involves. An attempt to define LED has however been made by Blakely (1994, p. xvi) who defines it as, "...the process in which local governments or community-based organizations engage to stimulate or maintain business activity and/or employment. The principal goal of LED is to stimulate local employment opportunities in sectors that improve the community, using existing human, natural, and institutional resources". According to Zaaijer and Sara (1993, p.129), LED "...is essentially a process in which local governments and/or community based groups manage their existing resources and enter into partnership arrangements with the private sector, or with each-other, to create new jobs and stimulate economic activity in an economic area". Although these definitions cannot be taken as the final statement of what LED is, they do provide a broad insight into the overall orientation of the concept. Despite this, the topic of Local Economic Development (LED) and related concepts such as community economic development, self-help and self-reliance strategies appear to have received considerable attention from scholars in recent years (Turok, 1989; Bennett, 1990; Stöhr, 1990; Clarke and Gaile, 1998) and according to Reese (1993a, p.492), “research on local economic development (has grown) exponentially”.
The reality of LED has been examined by a wide range of authors over the last 20 years, as is witnessed by a significant variety of books and articles on the topics (Judd and Parkinson, 1990; Zaaijer and Sara, 1993; Clarke and Gaile, 1998; Nel, 1999). According to Glasson (1992), by the end of the 1980s regional planning in the North emerged from the ‘doldrums’ in a revamped, dynamic new form. ‘Top-down’ approaches have now, partially, been superseded by locally driven strategies. These are based in the host community, are motivated by a desire to improve local conditions and encourage that area’s entrepreneurs. This is in preference to the more traditional ‘smoke-stack chasing’ approach of seeking investment by large-scale, external firms (Daniels, 1989; Stöhr, 1990). The notion that regional policy was at a ‘crossroads’, both financially and theoretically, has given impetus to local initiatives and LED more specifically (Albrechts et al, 1989). In the North there has been a definite switch to ‘bottom-up’ / ‘development from below’ / endogenous / supply side strategies characterized by a frequent reliance on decentralized, flexible production in which local authorities and actors play a key role (Stöhr, 1990; Glasson, 1992). The swing in favour of so-called ‘bottom-up’ strategies, which emphasize local action as opposed to that of the central state, has clearly marked a significant shift in development thinking.
LED can materialise when local agencies and/or people seize the initiative and engage in actions which unify communities, business and other relevant authorities in their local area in a joint endeavour to improve their economic and social conditions (Stöhr, 1990). It appears that LED is generally a cost-effective and community-empowering process which has a defined role to play and which can yield tangible benefits for participating communities. There is a clear, defined role for government within this overall context, namely that of facilitating, supporting, part-financing and devolving control. Although LED in the South and the North are directly comparable, in terms of issues such as reliance on local control and initiative and the addressing of local needs, the well-publicised Northern examples tend to focus far more on issues of investment, big-business support and large project development undertaken by relatively well-resourced local agencies with or without external support (Judd and Parkinson, 1990). In parallel, in the North, community economic development and the activities of community business form an important adjunct to the more formalised policies, particularly in underdeveloped areas (Wilson, 1996a,b,c; Filion, 1998; Haughton, 1998; O’Deherty and Durrschmidt, 1999).
In the South, even though there is some evidence of urban entrepreneurialism in places like Brazil, Peru and Korea (Ferguson, 1992; Zaaijer and Sara, 1993; Rogerson, 1999a) as the literature on ‘self-reliance’ suggests, LED often relies far more on small-scale and community-based initiatives, utilising indigenous skills and seeking primarily to ensure survival, rather than participation in the global economy (Taylor and Mackenzie, 1992). These categories are naturally not mutually exclusive. LED in the North and the South can be conceptualised as operating at two broad levels, namely:

a) The formal - usually characterised by the involvement of local and higher authority structures and the formal business sectors (Nel, 1999), and

b) The informal - usually characterised by action at the level of community-based organizations and NGOs. Links with spontaneous self-reliance initiatives and the informal sector have been discerned (Wilson 1996c; Nel, 1999).

Within this overlap context the role of partnerships between key agencies is clearly important.
The reliance of LED initiatives, particularly at the community level, on high degrees of social cohesion and the joint identification and implementation of projects ensures that there is complementarity between LED and the currently vogue notion of social capital. The popularization of the 3rd Sector or civil society (Wilson, 1996a) as identified by Putman in his work on social capital in Northern Italy (Buckland, 1998), draws attention to ‘features of social organization, such as trust, norms (customary behaviour), and networks, that can improve the efficiency of society by facilitating co-ordinated actions’(in Buckland, 1998, p.241). Trust and co-operation are essential for achieving indigenous efforts at community development. In many parts of the world, social capital is enhanced through the pro-active endeavours of NGOs which according to Mercer (1999, p. 247) are ‘the development panacea for the 1990s and beyond’. Much has been written about the actual and potential role of NGOs in development but it would be fair to argue that their role has probably been exaggerated and they have been credited with abilities above and beyond their actual capacity.
Though a great variety of strategies are applied around the world, some general approaches can be outlined. Individual selection will depend on whether local authority LED or community based LED is being followed. The latter will normally opt for community focussed activities, with an economic and job-creation focus tending to dominate strategies; support for small enterprises is a common trait. Company establishment is frequently encouraged by local authority based endeavours through either ‘supply-side’ incentives such as tax related incentives which are common in the U.S.A. or ‘demand-side’ incentives. The latter, which are common in Canada, involve the development of new businesses by employing strategies which build demand for locally produced goods and provide support for emerging enterprises. Assistance with marketing and training all feature prominently in this case (Reese, 1993b). Some of the most common formal LED strategies pursued by authorities involve (in no set order of precedence):

Financial Support:

- revenue bonds

- revolving loan funds and below market rate loans

- tax incentives

- loan guarantees and / or equity participation

- investment packages

- financial assistance to small firms

- community banking / group loan schemes

Land and Building Development:

- provision of infrastructure and land

- land acquisition

- the provision of workshops and small industrial premises

- enterprise zones with tax and planning concessions

- urban regeneration

- agricultural support

Information and Marketing Assistance:

- supply of information and advice

- general marketing and promotion and image reconstruction

- targeted marketing of products or areas

- export promotion

New Planning and Organizations Structures:

- adoption of comprehensive planning techniques

- streamlining administration

- community development corporations, community business and co-operatives

Training and Employment:

- employment and training strategies and grants

- direct employment

- vocational education

- social support structures / community organizations

(Bovaird, 1992; Clarke and Gaile, 1992; Lever, 1992, 1993; Koebel and Bailey, 1993; Reese, 1993a, 1993b; SANCO, 1995).
It needs to be pointed out that no single locality will apply more than a limited number of these strategies. Some examples serve to illustrate this point. Italian towns have been noted for a focus on small business promotion, through the use of grants, equity participation, tax incentives and the occasional provision of factory space (Brusco and Righi, 1989). By contrast, in Spanish centres, the focus is often on place-marketing and infrastructural development which acts as a drawcard to potential entrepreneurs and investors (Garcia, 1993). In North America a shift in LED activities away from traditional locational incentives to more entrepreneurial approaches has been noted. Less use is being made of tax incentives, which are seen as unwieldy, in favour of new marketing strategies e.g. special promotions and cultural events, business incubators, leaseback arrangements, improvement of the local environment and building rehabilitation (Reese and Fasenfest, 1996). In documented Brazilian localities there has been an alternate focus on community organizations, community business, community support programmes and appropriate training (Ferguson, 1992). Applied LED can vary from a strategy applied within an entire city to one applied in a particular neighbourhood or community.
It would be wrong to see the above strategies as resounding successes or as the prelude to a new phase of economic regeneration and growth. LED does, however, represent a serious attempt by local actors, as representatives of their communities, to promote and sustain economic development in spite of recessionary and other global forces. Whilst there appears to be universal agreement that change has occurred, the degree to which it has taken place is open to debate as is the whole question of whether LED can really serve as a new growth option. Opinions on the latter point vary, according to Razin (1990, p.685) who asserts that “LED policies have gained widespread recognition during the last decade, and may soon overshadow national spatial economic policies”. Practically however, not all initiatives succeed, many projects do experience a life-cycle commencing with enthusiasm and success followed but what can often be mediocre results and despondency. As Stock (1995, p.359) points out, “there are limits to what they (communities) can accomplish”. The sense of critical reflection which such realities has engendered has led to the recent investigation and publication of articles which address topics such as the ‘Rise and Fall of Local Economic Development’ ( Hall, 1995) and “Why state and local economic development programmes cause so little economic development” (Dewar, 1998).
Research by Green, Fleischmann and Kwong (1996, p. 609) in the USA show that: LED policies had ‘a limited influence on changes in the number of jobs in cities during the economic recovery of the 1980s. Local investment in infrastructure and education, however, may enhance employment growth in both the manufacturing and the service sectors’. These are sobering thoughts which other regions of the world need to be aware of when seeking what seem to be alternate growth options to pursue. The determination of the various factors which cause a project to succeed or fail are critical in the analysis of any case-study of LED. Over an above obvious factors such as available resources - both financial and physical and questions of transport and accessibility, critical within the debate has to be the role of both human and social capital. Leadership within any LED initiative is not confined to any single group and can fall under local governments, NGOs, government, community groups or a combination of such organizations (Zaaijer and Sara, 1993). Further, as a project evolves it might either peter out and die, or mutate and alter course according to prevailing circumstances, obstacles and opportunities. Attention now shifts to an examination of the situation in South Africa.

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