| Econ3x3

Position: Senior Agricultural Economist

Institution: Western Cape Department of Agriculture

Expertise: Agricultural Development and macroeconomic research

Louw is an agricultural economist at the Western Cape Department of Agriculture at Elsenburg. Working in the division for macro and resource economics, he is involved in multi-sector analysis and research on economic impacts on agriculture in South Africa and the Western Cape. He is interested in rural development and the role of agriculture in development and food security. Louw holds a M.Sc. in agricultural economics at the University of Stellenbosch and have been involved in research with the Bureau of Food and Agricultural Policy (BFAP) since 2010. Other fields of study include International Trade, Livelihood and Poverty analysis and Labour market outcomes within an agricultural context.

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Editor's Corner

The importance of place

How important are local factors in overall economic growth?

In this edition of Econ3x3, Justin Visagie and Ivan Turok argue that too much attention has been paid to national growth at the expense of looking at specific factors at play in regions.

For instance, Gauteng generates a third of national GDP - more than double the output of the next province - with less than 1.5% of the total land. And Gauteng income taxpayers contribute nearly half of all personal income tax although the population in that province constitutes just over a quarter of the national population.

Economic growth has also been notably stronger in Gauteng and the Western Cape. Between 1995 and 2018, these provincial economies expanded at an average of 3% per anum, about one third faster than the rest of the country.

Policymakers, they write, need to focus on the specific conditions in each province to tailor economic policy suitable for each area. The evidence is that there is a growing disparity between the three provinces with the strongest economies – Gauteng, the Western Cape, and KwaZulu-Natal - and the three with the weakest, namely North-West, the Free State and the Northern Cape.

Conventional policy prescriptions, such as industrialisation and diversification, are not suitable for all provinces and small towns. And even backing the most successful industry in some provinces – such as the automotive sector in the Eastern Cape – may not yield the desired results. Instead, a focus on improving the operating environment for businesses, such as investing in infrastructure, or producing skills that firms in the area need may boost economic performance more.

Visagie and Turok argue that a “shift-share” analysis is useful. This separates the region specific (or ‘place-based’) effects from nationwide industry sources of growth for each province.

The core features of each province need to be understood to better devise policies that are effective in promoting local economic growth.

This is especially important in those provinces that contain remnants of the old apartheid homelands, such as the Transkei and Ciskei in the Eastern Cape, which are rife with poverty and unemployment.

Such an understanding of local conditions could also help policymakers better understand current and future internal migration trends.

We also draw attention to last week’s contribution to policy analysis by Pamela Mondliwa and Simon Roberts in their article adapted from a chapter in the book published by Oxford University Press last year entitled “Structural Transformation in South Africa: The Challenges of Inclusive Industrial Development in a Middle-Income Country.” Edited by Antonio Andreoni, Pamela Mondliwa, Simon Roberts, and Fiona Tregenna, the book examines “the central importance of industrialization to a path of sustained economic growth and catching-up.”

Their central question is why South Africa has not transformed its economic sector sufficiently to empower smaller, downstream enterprises that create jobs. The answer they suggest is that the nature of the political settlement has been such that policy favours established business interests. This is despite several industrial policies and competition legislation. The strength of established businesses has resulted in government tending to support, in the main, larger, upstream businesses in the mineral and resource industries.

Overall South Africa has effectively deindustrialized, and this has had concomitant effects on jobs creation and inequality.

They provide compelling accounts of each post-apartheid administration, from Mandela to Mbeki to Zuma, to analyse the dynamics and priorities of the various eras.

Through detailed case studies of various industries, they show how the most powerful interest groups have been able to influence industrial policy and how the state itself has become an arena where these conflicts play out. Their analysis points to the urgency of building new coalitions that will stimulate productive investment and build a more inclusive economy.

Likewise, in its contribution to thinking about economic policy, the article by Visagie and Turok argues for detailed analysis of local factors at play in each province to strategize specific growth paths that have regional relevance. If the provinces could be assisted to find niche areas in which to strengthen their economies, this would enhance national productivity and growth.

Pippa Green

January 27, 2022

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Working Papers from the REDI3x3 project are available HERE

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Econ3x3 provides a platform to promote robust economic policy discourse in South Africa. The complexity, but also sterility of public debate on many policy issues, demands that knowledgeable individuals engage in robust debate. This can inform other individuals and policymakers on issues that they deal with in day-to-day policy making or policy analysis.

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Articles

The importance of place

Working Papers from the REDI3x3 project are available HERE

READ, WRITE & REASON

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