The fast-approaching Brics summit offers a real opportunity for South Africa to market industrial clusters — which are key ways to unlock regional and export-led growth — for investment.
The notion of the “Marshallian industrial district” is re-emerging as a socioeconomic growth lever in industrialisation literature; it recognises that industrial clusters offer opportunities for lower production costs, infrastructure-led growth, new technology development and reshoring of skilled human capital.
The industrial district lends itself to the government’s district development model being piloted by the eThekwini metropolitan municipality and the OR Tambo and Waterberg district municipalities.
This model was built on the insights in the 1998 white paper on local government and has since been championed by President Cyril Ramaphosa to ensure that “local government is capacitated and transformed to play a developmental role”.
Industrial districts emphasise skills development, technology advancement and improved competitiveness; they leverage their infrastructure to drive the development of critical intellectual property and knowledge economy management.
The Durban logistics hub offers an opportunity to boost eThekwini’s potential to develop an industrial district. Transnet National Ports Authority this year announced expansion plans for the Durban hub as part of the R100bn-plus KwaZulu-Natal logistics hub programme, which seeks to position Durban as an international container hub with increased container and vehicle-export capacity.
Richards Bay is being positioned as a dry-bulk hub in alignment with the department of mineral resources & energy’s strategic plan, which features a new berth for handling liquefied natural gas (LNG) as a cleaner alternative to coal. Some of the dry bulk terminals and mineral-handling facilities are earmarked for relocation from Durban’s Island View and Maydon Wharf precincts to the Richards Bay harbour.
Industrial districts, as is also the case with SEZs, risk becoming white elephants if the capital investment and expansion programmes are not well managed.
Industrial districts, as is also the case with special economic zones (SEZs), risk becoming white elephants if the capital investment and expansion programmes are not well managed.
In their paper, “SEZs in Southern Africa: white elephants or latent drivers of growth and employment?", Mwanda Phiri and Shimukunku Manchishi find that such zones in the Eastern Cape were hampered by inadequate infrastructure financing and weak local supplier capabilities. They argue that burdensome regulation, fragmented incentive frameworks and lack of core industry anchors in the SEZs increased the risk of them becoming white elephants.
In terms of the trade and competitiveness opportunities these agglomeration systems offer, Ronald Davies and Arman Mazhikeyev, in their research in 21 African and Asian countries, found that firms in industrial clusters tended to be more export-orientated. The findings show that where there are existing bilateral trade agreements (intensive margin) and where a new one is to be established, firms in the industrial cluster had higher levels of trade.
The department of trade, industry & competition (DTIC) has designed industrial districts and SEZs to ensure they promote the vertical integration of industry through linkages with downstream industries to incorporate local inputs, raw materials, services and labour into the production of internationally competitive export products.
In addition, industrial districts and SEZs are seen as promoting the use of such existing infrastructure as ports, airports, roads and telecommunications, and advancing the development of human resources.
But the DTIC has not been able to design incentive structures for the deepening of investment into industrial districts.
This is evident in the “Global Innovation Index” report, which highlights some critical gaps in the South African economy. It shows that the country ranks in the second-last quartile for its creative industry inputs, for its human capital investment and R&D and in the infrastructure pillar.
Operations in an industrial district should be aligned with its mandate of capacity building, technology advancement, infrastructure support, route to market enablement (incentives, concessions, waivers, subsidies and so on), marketing and promotion and investment sourcing and pooling.
However, using industrial districts to address market failures outside this mandate — such as weak legal and regulatory frameworks, ineffective institutions and disjointed state commitment — will fail to fulfil their potential to create backward linkages and circular economies.
The Durban logistics hub is an important case study and opportunity to spotlight the important role industrial districts can play. The Brics summit must be used productively for investment marketing, particularly for infrastructure-led opportunities.
* Skenjana is an independent economist and chief consultant for economic and policy research for Transnet
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