Chapter 4: THE ECONOMIC ENVIRONMENT

Authors: Bryan Tladi(1) and Frank Tlhomelang(2)

1.Bohlweki Environmental (Pty) Ltd., Midrand, Johannesburg
2.North West Dept. Economic Development & Tourism, Mafikeng

CONTENTS

Introduction

Structure of the Provincial Economy

Economic Growth and Investment

Future Economic Developments for the North West Province

Conclusion

References

Maps:

Spatial development initiatives in the North West Province (Map 20)

4.1 INTRODUCTION

The North West Province is a medium-sized province relative to the others in the country. The economy is small, with a 4.9% contribution to the national Gross Domestic Product (GDP) (Figure 4.1.1). A 2% economic growth rate was reported for the Province for the year 2000. The Province is characterised by high levels of poverty and high unemployment levels as well as low literacy levels. These are some of the challenges that the Province is faced with from an economic perspective.

Figure 4.1.1: Contribution of provinces to the national GDP in 1996 (Source: South Africa: Inter-Provincial Comparative Report, 2000).

4.2 THE STRUCTURE OF THE PROVINCIAL ECONOMY

The North West Province's economy, is derived from a variety of sectors, of which mining and agriculture are the main contributors. Other important sectors include energy, construction, trade, transport and communication, community, social and personal services, manufacturing and finance, insurance and business services. Figure 4.2.1 shows the sectoral contribution to Gross Geographic Product (GGP) in the North West Province. The main contribution to the economy has been from the mining and agricultural sectors, although diversification of the economy to other sectors is occurring. The major economic sectors in the Province are discussed below.

Figure 4.2.1: Percentage growth of sectoral contributions to the Gross Geographic Product (GGP) in the North West Province (Source: South Africa: Inter-Provincial Comparative Report, 2000).

Mining - The mining sector is the lead contributor to the Province's economy both financially and by its labour absorption capacity (35,5% contribution to the domestic economy in 1996). Formal employment opportunities provided by the mining sector in the Province absorb approximately 118 000 employees (22%). The average annual remuneration for this sector in the Province is R41 967. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Agriculture - The agricultural sector provides approximately 80 000 formal employment opportunities in the North West Province (14,8%). The rural areas are the main beneficiaries of these employment opportunities. This sector employs mainly males, who comprise 80% of the total employment statistics. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Manufacturing -This sector is prevalent in Brits, Lichtenburg and Rustenburg areas respectively. These areas account for 50% of the total production in the Province. The manufacturing sector employs approximately 47 451 people, representing 8.8% of the total formal sector in the Province. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Electricity -This is a relatively small sector, representing 2,1% of the GGP. Between 1990 and 1999, this sector recorded an annual growth of 4% per annum. About 4 000 employment opportunities are provided by this sector in formal employment. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Construction - This sector contributed R776 million to the Province's GGP in 1999 The construction industry's contribution to the provincial economy was 3,8% in 1990 and 1,8% for 1999. Formal employment opportunities provided by this sector account for approximately 3,2% (17 400) of the total employment opportunities in the Province. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Trade - This sector contributed R4,7 billion to the Province's GGP in 1999. Between 1990 and 1999, the contribution of this sector has grown from 8,9% to 11,27%. Currently, the wholesale and retail sector provides 10% of formal sector employment representing approximately 53 450 employment opportunities. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Transport and communication - Between the period 1990 to 1999, this sector has experienced growth of 11,3 %. Within this period, it has increased its contribution to the provincial GGP from 2,8% to 5,7%. The sector's formal employment contribution to the Province is 3%, which represents 15 000 formal employment opportunities. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Financial and business services - This sector contributed R2,7 billion to the Province's GGP in 1999. This sector has experienced a negative annual growth of approximately 2.9%. This sector provides 19 124 formal employment opportunities, accounting for 3,6% of total employment. (Economic Development and Industrialisation Plan for the North West Province, 2001).
Community, social and personal Services -This sector contributed R10,7 billion to the provincial economy in 1999. The GGP of this sector had an annual average rate of increase of 5.6% between 1990 and 1999. The contribution of this sector has grown from 19,7% to 25,5%. In terms of formal employment opportunities provided by this sector, it accounts for 130 000 opportunities. (Economic Development and Industrialisation Plan for the North West Province, 2001).

The status of the economy in the North West Province currently indicates a dependence on the production of primary commodities such as gold, platinum and agricultural products, which are determined by world commodity prices and favourable climatic conditions. These remain factors which the Province has no control over thus increasing its level of vulnerability to exogenous influences. The industrial base in the Province also revolves around supplying the mining and agricultural sector, thus a decline in any of these sectors tends to have a ripple effect on the downstream industries.

4.3 ECONOMIC GROWTH AND INVESTMENT

The North West Province experienced a decline in economic growth of 0.6 % between 1991 and 1996, causing the Province's contribution to the national GDP to decline to 4,6% in 1996 (Figure 4.3.1). The implications of low economic growth are an increase in poverty, unemployment and crime. The ideal situation would be where sustainable and quality employment and wealth creation opportunities are enhanced. These need to be targeted at the vulnerable sectors of the population. In the period 1994 to 2000 the economy has shed approximately 118 000 jobs, as opposed to creating much needed 56 000 employment opportunities in the formal sector (A Re Ageng, 2001).

Figure 4.3.1: Average annual growth in GGP by province in South Africa, 1991 - 1996 (Source: South Africa: Inter-Provincial Comparative Report, DBSA, 2000).

The lack of economic growth in the sector is primarily due to a decline in the contribution of the mining sector, with production from the mining sector declining from 26,1% to 21,6% between 1991 and 1996. This has been mainly due to low production and sometimes to the total closure of mining operations in the Province.

The decline in the contribution of the mining sector to the provincial economy, is gradually being balanced by the growth of other sectors such as manufacturing, resulting in a more diversified economy. The tourism sector is another potential growth point for the Province's economy. There are very positive prospects for the growth of this sector, taking into account the natural and historical sites of significance in the Province. The tress index for the Province, which is an indicator of the vulnerability of the economy due to its dependence on a particular sector, has decreased from 69,9% in 1980 to 49,8% in 1996. The closer the value of the tress index to 0%, the less vulnerable the economy becomes to a single sector's poor performance, and the more diversified it becomes.

The manufacturing sector has experienced growth from 8,4% in 1991 to 12,8% in 1996, in terms of contribution towards the provincial economy. The Province provides only 8,3% of the formal and informal employment opportunities in South Africa. Of the employment opportunities provided, 22,4% result from the mining and quarrying sector.

Despite growth in several economic sectors in the North West Province, there is still a challenge to expand and grow the economy. Diversification remains the strong element for stabilising the growth of the provincial economy as well as reducing its vulnerability to exogenous forces. The North West Province has set itself growth targets through the different initiatives currently being considered. The initiatives aimed at improving the economic situation for the Province include:

North West 2001, a vision through which the province aims to meet the basic needs of the poor, reduce inequality and create jobs and opportunities for the people;
North West 2010, the Provincial Sustainable Development Framework focusing on the integration of economic development, social development and ecological considerations;
North West Industrial Strategy and Tourism Master Plan, aimed at enhancing the development of the industrial and tourism sectors in the Province;
National Integrated Rural Development Strategy, aimed at creating livelihoods for the rural populations;
SMME Strategy, aimed at accelerating the growth of the small, medium and micro-enterprises in the Province;
Poverty Relief Strategy, aimed at minimising the negative impacts of poverty in the vulnerable communities through sustainable mechanisms;
Agricultural Development Strategy, aimed at developing agriculture to increase food security and increase production for competitive markets.

These initiatives are aimed at reducing the unemployment rates through sustainable employment creation opportunities. The growth targets reflected, anticipated by the Province, would be realisable through intensified strategic initiatives, which:

Increase the rate of employment and job creation;
Target the quality of employment and thus the level of income for the poor;
Increase the quality and skills of the labour force; and
Directly affect the bargaining power of workers and create incentives for them to provide their full potential qualifications in the job.

An effective social upliftment process is achievable through co-ordinated government strategies and actions. The current investment climate in the North West Province poses a challenge for the Province in that the labour market offered by the Province ranges from primarily illiterate to semi-skilled. The demand in the market is currently moving towards the skilled and more highly educated personnel. The North West Province has identified certain issues as crucial for economic development. These are as follows:

Investment promotion;
Spatial Development Initiatives;
Maintenance of State assets;
Outsourcing;
Public private partnerships;
Tender procurement policy; and
Small Medium Macro Enterprise training of the labour market.

For the aspects outlined above to offer sustainable economic opportunities, there is a need to target the rural poor, especially women and youth. Agenda 21 recognises nine major groups, all of which need to actively partake in the creation and implementation of more sustainable economic growth opportunities. The target groups include:

Women and youth;
Indigenous people;
Non-governmental organizations;
Local authorities;
Workers and unions; and
Scientific and technological community.

4.4 FUTURE ECONOMIC DEVELOPMENTS FOR THE NORTH WEST PROVINCE

Three major spatial development initiatives (SDIs) and corridors have been planned for the North West Province (Map 20). The most significant is the Platinum Spatial Development Initiative, which is being hailed as a vital development for the economic future of the Province. The Platinum SDI has, as one of its primary objectives, economic growth through increased local, regional and international trade. The Platinum SDI is underpinned by the Platinum Highway (currently under construction), a transport route that acts as an economic artery linking the North West Province with the economic hub of South Africa, Gauteng Province, and providing further linkages with other transport corridors. The Platinum Highway is part of a broader corridor network, which links the country, and the Province, with the neighbouring countries of Mozambique to the east and Botswana to the north-west. The Platinum Highway carries very important prospects for the future growth of the Province's industrial sectors. As far as the regional economic sectors are concerned, trade, business and financial services, and food and construction industries are set to benefit. From a trade perspective, the decline in North West Province's economy, as well the associated negative effects such as growth in unemployment, can be reversed through effective strategies to obtain maximal output from the SDI. Table 4.4.1 indicates the predicted sectoral impact on the national GDP and North West GGP by the Platinum SDI.

Table 4.4.1: Predicted Sectoral Impact: Gross Domestic Product. (Source: Platinum Highway EIA, Bohlweki Environmental, 2000).

Sector	Republic of South Africa		Regional Economy
Sector	Value	Percentage	Value	Percentage
Agriculture	67.0	4.2	39.7	5.2
Gold mining	38.1	2.4	4.1	0.5
Other mining	67.4	4.2	58.3	7.6
Food	102.3	6.4	34.8	4.5
Beverages	21.9	1.4	7.0	0.9
Tobacco products	4.1	0.3	0.8	0.1
Textiles	14.8	0.9	2.8	0.4
Clothing	11.7	0.7	2.4	0.3
Leather & leather products	2.2	0.1	0.4	0.0
Footwear	4.3	0.3	0.8	0.1
Wood & wood products	8.3	0.5	1.6	0.2
Furniture	8.3	0.5	1.8	0.2
Paper & paper products	28.5	1.8	1.9	0.3
Printing & publishing	12.7	0.8	1.0	0.1
Chemicals	71.0	4.4	5.3	0.7
Rubber &rubber products	5.3	0.3	1.1	0.1
Plastics	11.0	0.7	2.0	0.3
Non-metallic mineral products	19.3	1.2	8.2	1.1
Base metals	36.5	2.3	2.4	0.3
Fabricated metal products	52.6	3.3	3.6	0.5
Machinery	30.5	1.9	2.1	0.3
Electrical machinery	19.0	1.2	1.4	0.2
Transport equipment	51.4	3.2	3.2	0.4
Other manufacturing	9.1	0.6	4.6	0.6
Electricity & water	70.6	4.4	5.0	0.7
Construction & civil engineering	113.5	7.1	73.3	9.6
Trade	238.9	14.8	180.4	23.5
Accommodation	24.4	1.5	15.0	2.0
Transport	100.3	6.2	40.3	5.3
Financial & business services	242.2	15.2	188.4	24.6
Communication	28.0	1.7	6.3	0.8
Total	1,609.8	100.2	766.5	100.1

Table 4.4.1 indicates potential growth points that can result in a decrease in unemployment. According to the macro-economic impact analysis, nearly 14 000 jobs, destined for South Africa as a whole, will be created by the Platinum Highway Project. Of these, close to 7 000 will be established in the vicinity of the route. This initiative's impact on personal income will amount to R1,8 billion for South Africa as a whole. Of this amount, 18,7% is destined for lower income households. As far as the regional impact on income distribution is concerned, approximately half of the total income will take place in the region.

4.5 CONCLUSION

The economy of the North West Province has displayed its vulnerability in several ways. The heavy reliance of the Province on the mining sector has led to an accompanied decline in the economy due to the under-performance of the sector despite good growth of the platinum sector. The diversification of the economy is a priority in the Province, and needs to be made a priority.

The economic growth points that can be resourcefully utilised, such as the tourism sector, need to be strengthened to decrease the current tress level of the Province. The short, medium and long-term strategies earmarked to facilitate the economic growth of the Province need to geared towards unemployment reduction, especially in the rural areas. These strategies need to complement the economic realities and complexities of the Province. In order for the Province to start addressing the problems currently facing it, numerous other factors need to be carefully addressed. These include:

Improving the literacy rate to prepare the citizens for the job market. Currently the Province produces unskilled to semi-skilled labour, which does not meet the labour demands of today's market, leading to high unemployment rates (see Chapter 3);
The creation of quality employment to ensure that the citizens are remunerated in a manner that enables them to meet their basic needs;
The engagement of rural women and youth in economic activities needs to be intensified. These groups remain the vulnerable majority as past policies tended not to address their plight in a sustainable manner;
Sustainable development needs to underpin all economic strategies to ensure that the carrying capacity of the environment is not exceeded. If environmental considerations are not built into development strategies, it may result in diminished return on investments, whereby society and the environment both become losers in the long- term;
Curbing the HIV/AIDS pandemic, that is negatively impacting on the economically active population of the Province (see Chapter 3).

References

A Re Ageng. 2001. North West Province Annual Report 2 1999-2000. North West Province DACE, Mmabatho, 108pp.
Bohlweki Environmental, 2000. Platinum Highway Project, Environmental Impact Assessment, Midrand
North West Provincial Government, 2001. Economic Development and Industrial Plan for North West Province, 2001. Development Information Service , Mmabatho.
Development Bank of South Africa (DBSA). 2001. South Africa: Inter - Provincial Comparative Report. DBSA, Midrand
Orkin, F.M. 1998. Living in the North West; selected findings of the 1995 October household survey. Statistics South Africa, Pretoria.
United Nations Development Programme (UNDP). 1998. Inequality in South Africa. UNDP, Nairobi.

Social Environment

Contents

Policy and legislative environment