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Whither LED in South Africa?

A Commentary on the Policy Guidelines for Implementing Local Economic Development in South Africa, March 2005

Doug Hindson & Valeria Vicente

Hindson Consulting

25 July 2005

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  1. LED policy: a difficult birth

    Local economic development (LED) policy in South Africa is going through a difficult birth. During the first decade of democracy, the focus of municipal LED initiatives was on community economic development projects, many of which proved economically unviable and had no lasting impact on poverty reduction. Cooperation between government, local businesses and the voluntary sector was often weak or inexistent and non-state actors felt sidelined from most government initiatives. There was lack of consensus over the goals of LED, whether these were primarily to promote economic growth or poverty reduction. Added to this was confusion over the target groups, processes, institutional arrangements and tools of LED. Underlying these difficulties were paradigm conflicts over the role of the state and markets in development.1 More fundamentally, local economies were subject to powerful new forces resulting from South Africa's opening to economic globalisation, forces that entrenched inherited spatial patterns, cross-cutting government's efforts to integrate prosperous and impoverished localities and regions. LED practice, as pursued by (local) government, had indifferent results, both in terms of economic growth and sustained poverty reduction. In particular, the experience of the Local Economic Development Fund (LEDF), set up by the Department of Provincial and Local Government (DPLG) to support poverty reducing LED projects, produced dismal results.2

    Responding to these difficulties, two major efforts have been made by the DPLG to formulate a national policy framework for LED, the first resulting in a document entitled Refocusing Development on the Poor, dated 2001 and the second entitled Policy Guidelines for Implementing Local Economic Development in South Africa, 2005.3

    The main aim of the first document was to bring "the poor to the centre of LED strategy". It focussed on measures that were to address their needs directly within poor areas, namely community economic development linked to municipal infrastructure service delivery, human resource development and the retention and expansion of local enterprises. The document argued that LED should be implemented within IDP processes that are holistic, people-centred, and focused on job creation, urban and rural development in poor areas. It emphasised the need to pool public funding sources for LED and to apply these within integrated LED programmes.4 While there was much of value in this document, it contained a number of flaws that were to prove fatal. One was failure to address the question of the competitiveness of the formal economy under increasing pressures of economic globalisation. Another was lack of attention to the connections between growth in the developed economy and employment and income generation opportunities for the poor in the underdeveloped economy. More generally, the document gave inadequate attention to the core LED questions of enterprise and market development. Though widely circulated, Refocusing Development on the Poor was never officially released into the public domain and failed to reach Cabinet for approval.

    The Policy Guidelines for Implementing Local Economic Development in South Africa, represent the second major attempt to draft a national policy framework. The process began around early 2003 and resulted in a number of draft documents, culminating in the officially circulated Guidelines of March 2005.5 It is this latter document, which we refer to hereafter as the Guidelines, that constitutes the focus of this discussion paper.

  2. Aim and contents of this paper

    The aim of this paper is to provide a commentary on the Guidelines drawing both on South African and international experience.6 In evaluating the Guidelines against international practice we wish to emphasise that the basis of comparison is not with some hypothetical international "best practice". LED in South Africa and internationally is in a period of flux, exploration and experimentation. There is fairly wide consensus over what does not work well in LED. There is less certainty over successes - what does work well. There have been rapid advances in LED process - how LED is undertaken, and considerable success in this dimension across many countries, as reflected in the enthusiasm of participants. But there is much less certainty about the impacts of LED in terms of outcomes such as economic growth and poverty reduction, partly because these are inherently difficult to measure.

    Thus when this paper refers to international trends, these are generally exploratory ones in which outcomes are as yet by no means certain. The ideas put forward within the Guidelines are also, in our view, exploratory. At present, can be no ex ante certainty as to what will fail or succeed. Nevertheless, it is useful, we believe, to take note of what is being tried elsewhere, especially the approaches that seem most promising. It is in this spirit that we have written this discussion paper. It is intended as a constructive contribution to national debate on how to approach LED in South Africa, in a context of some failures and promising new directions in LED.

    Section 2 examines the aims and rationale of the Guidelines. It considers the significance for LED of making integration of the dual economy its core concern, and takes up the question of market failure raised in the Guidelines. Section 3 examines the spatial assumptions underlying the Guidelines. In particular, it asks whether the concept of "municipal economy" matches up to the processes of regionalisation and globalisation actually impacting the South African economy. Section 4 offers a set of conceptual tools to clarify the meaning of LED in the spheres of enterprise, locality and community. Section 5 examines the meaning and role of governance in LED and that of the roles and institutions for LED promotion. Section 6, provides a summary of the main implications of the paper for LED policy in South Africa.

  1. Hindson D (2003) "Local Economic Development in South Africa: Policy, Practice and Challenges", paper presented to the workshop on National LED Policy Development, Department of Provincial and Local Government, 30th April, 2003.
  2. A review of the LEDF is provided in: MXA, 2003a: Report on the national policy and institutional landscape of the Consolidated Municipal Infrastructure and Local Economic Development Programmes, DPLG.
  3. Republic of South Africa, Department of Provincial and Local Government (2001) 'Refocusing Development On The Poor', Draft Local Economic Development Policy Paper. This is the most recent of a number of drafts and contains important changes in emphasis from earlier ones.
  4. Republic of South Africa, Department of Provincial and Local Government (2001) 'Refocusing Development On The Poor', Draft Local Economic Development Policy Paper.
  5. We take the workshop on National LED Policy, held on the 30th April as the start of this process.
  6. For the international and South African experience we have drawn substantially on work undertaken for the United Nations Capital Development Fund. The three documents concerned are: Hindson D (2004) Review and Annotated Bibliography on Local Economic Development, United Nations Capital Development Fund, November; Hindson D (2004) Local Economic Development: Lessons and a Recommended Approach for the UNCDF, United Nations Capital Development Fund, September 2004; Vicente V (2004) Local Economic Development in South Africa, United Nations Capital Development Fund, September.

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