Considerations in City Economic Development Strategy Johannesburg City Improvement District Forum ERIS Properties. 3 Gwen Lane. 3 February 2015 Thomas Scott, Chief Economist, DED, City of Johannesburg
.. The planning context for the City of Johannesburg is Global, Regional, National and Local. C B A E F D G Sources: http://thepolicytensor.files.wordpress.com/2012/06/transportnetwork.jpeg and City of Johannesburg 2
World Economic Outlook - IMF January 2015 Forecast Source: IMF Infographic January 2015
South Africa compares poorly with significant African and South American players on recent growth performance and nearer term prospects.. IMF Forecast
THE NATIONAL CONTEXT SA growth outcomes impacted by global problems and self-inflicted domestic challenges..constraints remain in nearer term National Treasury sees recovery to 3% growth unlikely before 2017 Global factors: Weak global environment and slowdown in Europe, growth deceleration in China and Emerging Market economies with negative impact on exports and commodity prices. Oil market dynamics and price decline. Risks of capital outflows from Emerging Markets. Domestic factors: Electricity supply constraints; labour market disruptions, skills shortages, public sector administrative shortcomings, inadequate SMME development, twin deficit problem brings risks and constrains policy options. SA economic outlook - Features: Some consumer consolidation but spending growth limited by high debt levels and weak employment growth. Some support from fuel price Fixed investment supported by public sector infrastructure investment but private sector capex remains weak confidence, electricity supply. Export growth constrained by soft global demand and low commodity prices. The Rand shows nearer term resilience but vulnerable on the downside in the longer and medium term. Inflation improves on oil and commodity price drop, interest rates low for longer but watch risk to upside if BOP capital account weakens eg on EM capital flight
South Africa s near-term cyclical recovery prospects not good the fiscal and current account deficits remain key policy constraints.. growth forecasts adjusted down inflation outlook in past month. South Africa: Macroeconomic performance 2012 2017 Calendar year 2012 2013 2014 2015 2016 2017 Estimate Official Forecast Percentage change unless otherwise indicated Final household consumption 3.5 2.6 1.9 2.3 2.8 3.0 Final government consumption 4.0 2.4 1.8 1.5 1.5 1.5 Gross fixed capital formation 4.4 4.7 2.7 3.6 4.7 5.1 Gross domestic expenditure 4.0 2.2 0.9 2.6 3.0 3.3 Exports 0.4 4.2 3.1 4.2 4.7 5.2 Imports 6.0 4.7 1.0 4.1 5.0 5.6 Real GDP growth 2.5 1.9 1.4 2.5 2.8 3.0 GDP at current prices (R billion) 3 139.0 3 385.4 3 642.6 3 952.6 4 295.8 4 675.6 Headline CPI inflation % 5.7 5.8 6.3 5.9 5.6 5.4 Current account balance (% of GDP) -5.2-5.8-5.6-5.4-5.2-5.0 GDP IMF Jan 2015 1.4 2.1 2.5 GDP Econometrix Jan 2015 1.4 2.3 2.7 Sources: National Treasury National Medium Term Budget Review October 2014, IMF WEO Update January 2015, Econometrix Jan 2015 6
for most of the decade Joburg economic growth rate higher than SA at large. reasons changing sector structure and population growth. 7
percent.the world is rapidly urbanising with major implications for the economy, the environment and city management 90 80 70 60 50 40 30 20 10 0 World Urbanisation Rates % of population in urban areas World More developed regions Less developed regions Sub-Saharan Africa South Africa 1955 1975 1995 2015 2035 Source: United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: 2014 Revision. Urban Population Estimates Population, thousands 1995 2015 2035 World 2 568 063 3 957 285 5 394 235 Sub-Saharan Africa 163 172 359 534 731 817 South Africa 22 572 34 663 43 510 Basic Data Source: United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: 2014 Revision Cities currently occupy 0.5% of the world s surface but consume 75% of resources 1. UN data illustrates rising urbanisation is a global phenomena. Resource appetites will rise and environmental protection become increasingly critical. South Africa s urbanisation rate is already c. 60% and likely to be above 70% by 2035. SA cities are already, and will increasingly, bear the brunt of social and economic challenges The urban management challenge to South Africa cities will escalate over the next 20 years as urban population is set to grow by c. 9 million to c. 43 million. Johannesburg will carry a significant share of the burden. 8 1 PWC Annual Global Review 2014. p8
GVA at constant 2005 prices Johannesburg is the economic hub of South Africa and the Region and a destination for work-seeking migrants.. Johannesburg hosts 8.7% of South Africa s total population Population growth 3.2% per annum over the past 10 years - double the national rate of 1.3% per annum. Johannesburg s economy (equivalent to that of Kenya) accounts for 17% of South Africa s economic output and 47% of Gauteng s... It is also larger than most neighbouring countries equivalent to the 8 th biggest country in Africa or 66 th in the world. Metro population estimates - 2013 Mangaung, 775 892 350 000 000 Metro economic output - 2013 Johannesburg accounts for 17% of South Africa s economic output City of Tshwane, 3 047 094 Nelson Mandela Bay, 1 192 725 Buffalo City, 773 116 City of Cape Town, 3 801 767 ethekwini, 3 514 060 300 000 000 250 000 000 200 000 000 150 000 000 100 000 000 City of Cape Town ethekwini Ekurhuleni City of Johannesburg Nelson Mandela Bay City of Johannesburg 4 622 046 Ekurhuleni, 3 273 499 50 000 000 0 2013 City of Tshwane Mangaung Buffalo City
. over the past decade, growth of the City of Johannesburg accounted for a major share of South Africa s population increment and, increase in national economic output Johannesburg hosts 8.7
Source: Clark. G. The Business of Cities 2013. What do 150 City Indices and Benchmarking Studies tell us about the Urban World in 2013. Jones Lang LaSalle. November 2013 11
Johannesburg faces challenges in economic development. Lagging manufacturing growth and de-industrialisation Lack of access to global manufacturing value chains Key Economic Development Challenges City gold mining decline Low survival rate of small businesses Significant inwards migration and housing and service delivery backlogs Unemployment and high levels of poverty and inequality Apartheid-era legacy - segregated, unequal and spatially inefficient city Ageing City infrastructure and inadequate utility and services capacity Urban decay (Inner city and other areas) leads to City revenue loss.. the City s economic development strategy must respond to these challenges. the opportunities implicit in each of these challenges need to be extracted
Sector output growth Index 300 280 260 240 220 200 180 160 140 120 100 80 Data Source: IHS Global Insight, ReX 2014. 92% expansion in Johannesburg's economic output since 1996 all sectors expanded but the share of the financial and business services sector rose strongly. slippage in share of mining and manufacturing implies loss of powerful economic linkages and job creation potential. Sectoral share of JHB s 1996 Economic output 1 Agriculture 0% 2 Mining 2% 3 Manufacturing 20% 4 Electricity 3% 5 Construction 3% 6 Trade 16% 7 Transport 6% 8 Finance 22% 9 Community services 27% Sectoral share of JHB s 2013 Economic output 1 Agriculture 0% 2 Mining 1% 3 Manufacturing 16% 4 Electricity 2% 5 Construction 4% 6 Trade 16% 7 Transport 8% 8 Finance 32% 9 Community services 20% Johannesburg s Economy: Sector Relative Growth 1996 to 2013 Output in constant prices, Index 1996=100 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 285.3 273.9 243.8 192.2 159.1 137.8 8 Finance 5 Construction 7 Transport JHB 6 Trade 3 Manufacturing 9 Community services 2 Mining 4 Electricity 1 Agriculture 13
visualising the job creation and youth employment challenge. Johannesburg compared and South Africa 1) work seekers and 2) the young evolution of the current and future jobs challenge over a decade emphasises the imperative to accelerate creation jobs
on employment rates.. although Johannesburg fares better than other SA Metros. unemployment at 40 % is a massive problem in the City Employment Rates in South African Cities Working Age People in Employment in 2013 - % Mangaung 44.6% City of Tshwane 51.4% Buffalo City 39.2% City of Cape Town 51.9% ethekwini 51.2% Ekurhuleni 49.2% Nelson Mandela Bay 47.5% City of Johannesburg 60.0% Data Source: Stats SA 15
social grants have made a difference to poverty. number of people covered has grown strongly over 30% of the population. Massive cost to the national fiscus... Faster economic growth and job creation is imperative.
The SA Twin Deficit Problem Limits Macroeconomic Policy Manoeuvring Room Source: 2014 Medium Term Budget Policy Statement. National Treasury. Pretoria. p 13
the City of Johannesburg has seven diverse city regions. Apartheid legacies, changing local and global social, political and economic realities, and the exhaustion of economic reserves of the City s gold mines has shaped economic performance and socioeconomic characteristics of the city regions.. 18
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Output growth index Region Share of JHB's 1996 economic output Region A 10% Region B 13% Region C 10% Region D 10% Region E 25% Region F 27% Region G 4% 260 240 since 1996 output in Johannesburg s economy nearly doubled. fastest economic growth in the northern and eastern regions but growth in the southern and western part of the City has lagged D C B JHB's Regions - Relative Economic Growth since 1996 Output in constant prices. Index 1996=100 G A F E Region Share of JHB's 2013 economic output Region A 12% Region B 13% Region C 12% Region D 8% Region E 27% Region F 23% Region G 4% 236.7 220 200 180 160 140 120 100 205.5 192.7 180.4 158.5 Region A Region E Region B JHB Region G Region F Region D 80 Data Source: IHS Global Insight, ReX 2014 19
. the spatial pattern of economic activity and population concentration bears the mark of Apartheid era spatial planning, progressive de-industrialisation of the City-economy, the fading of Johannesburg s old gold mines and emergence of new economic drivers A SPATIAL DISTRIBUTION OF ECONOMIC OUTPUT AND POPULATION IN THE CITY OF JOHANNESBURG City Region shares in % (Green highest, Red lowest) City Region % of Population % of Economic Output (GVA) A 14 12 B 8 13 C 14 12 D 27 9 E 11 27 F 12 23 G 14 4 TOTAL 100 100 Northern Half (A,B,C,E) 47 64 Southern Half (D,F,G) 53 36 Western Half (C,D,G) 55 25 Eastern Half (A,B,E,F) 45 75 Basic Data Source : Global Insight 2013 D C B Region D (Soweto) has 27% of the population and only 9% of economic output. Region E (Sandton, Alexandra, Woodmead, Bruma) has 27% of output and 11% of the population Eastern half has 45% of the population but 75% of output Western half has 55% of the population but only 25% of output G F E
. which City regions contribute the most to sector output in each sector.. and to the City economy as a whole.. D C B A F E RELATIVE IMPORTANCE OF CITY REGIONS IN THE CITY OF JOHANNESBURG ECONOMY - 2013 G SECTOR CITY REGIONS CONTRIBUTION TO CITY SECTOR OUTPUT -% SHARE A B C D E F G TOTAL CITY SECTOR OUTPUT HEATMAP - REGION CONTRIBUTIION TO CITY SECTOR OUTPUT (GREEN LARGEST, RED SMALLEST) 1 Agriculture, Forestry and Fishing 23% 9% 26% 5% 16% 13% 9% 100% C,A 2 Mining and Quarrying 10% 15% 5% 8% 22% 39% 2% 100% F,E 3 Manufacturing 14% 12% 13% 7% 28% 23% 4% 100% E,F 4 Electricity, Gas and Water 5 Construction (Contractors) 6 Wholesale and Retail Trade, Catering and Accommodation 7 Transport, Storage and Communication 8 Finance, Real Estate, Business Services 9 Community, Social and Personal Services 15% 11% 9% 10% 21% 30% 4% 100% F,E 13% 12% 15% 8% 29% 19% 4% 100% E,F 12% 13% 11% 9% 26% 26% 4% 100% E,F 14% 12% 11% 10% 25% 24% 5% 100% E,F 14% 15% 13% 6% 29% 19% 4% 100% E,F 9% 13% 10% 12% 25% 28% 3% 100% F,E TOTAL REGION CONTRIBUTION TO CITY OUTPUT Basic Data Source: Global Insight 12% 13% 12% 9% 27% 24% 4% 100% E,F 21
. Johannesburg needs economic transformation in multiple dimensions to respond successfully to: Legacy social and economic challenges; opportunities and threats in a changing world; and, a continued rapid pace of urbanisation. Economic development strategy must deliver economic transformation Transformation requires engaging with the political economy i.e. The society-wide systems of power that influence patterns of production, distribution and consumption Economic transformation priorities Industrial transformation Spatial transformation Global City transformation Competitive market transformation Institutional transformation Mitigate or reverse de-industrialisation Transform Apartheid spatial patterns Strategically position South Africa in global value chains and networks Ensure South Africa generates successful small business Ensure institutions support development imperatives: State- State; State-Business and State-Community 22
. economic development strategy needs to address a number of intermediate target issues SOME REQUIREMENTS Positioning Johannesburg globally as a regional commercial hub for southern and eastern Africa Attracting and retaining enterprise investment in the City as a necessary condition for economic development and growth Reclaiming and revitalising low or non-revenue generating parts of the City such as vacant land, underperforming industrial land and areas of the inner city subject to decay. Promoting development of productivity enhancing sectors and City services such as ICT and transport and logistics networks, thus making the City more attractive as a business location. Developing small and medium-sized enterprises serving both the commercial sector and the City Providing economically empowering infrastructure such as ICT hotspots to poor communities with latent economic potential SOME TARGETED ISSUES Retention and consolidation of existing viable business and centres of excellence Attraction of new businesses and investment including those in the manufacturing sector Support for the development and growth of micro enterprise and small and medium-sized enterprise Achievement of a better spatial distribution of economic activity and job opportunities in the City Delivering greater inclusiveness in the economy in particular for previously disadvantaged citizens and the youth
Building Successful Cities for the Future City improvement Cues Source: Boyd Chen. http://www.fastcoexist.com/1680538/what-exactly-is-a-smart-city 24
.In conclusion the City is considering a number of interventions to shift the economic trajectory for Johannesburg. 1. Better Service delivery for businesses 2. Create Priority Economic Zones 3. Create Business Clusters in priority sectors/ areas 4. Fast-track decision-making for large, job-creating investments 5. Establish additional SME Hubs 25
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. public and private sector investment is critical to the transformation and growth of Johannesburg s economy. Key Economic Development Challenges Johannesburg faces challenges in economic development. Lagging manufacturing growth and de-industrialisation Lack of access to global manufacturing value chains City gold mining decline Low survival rate of small businesses Significant inwards migration and housing and service delivery backlogs Unemployment and high levels of poverty and inequality Economic Growth - Ingredients Labour Working Capital Entrepreneurship Production Inputs Productive Assets Enabling Infrastructure Markets Apartheid-era legacy - segregated, unequal and spatially inefficient city City utilities infrastructure and services inadequacies Urban decay (Inner city and other areas) leads to City revenue loss.. the City s economic development strategy must respond to these challenges. the opportunities implicit in each of these challenges must be extracted 8 Generic Spatial Target Issues Network Infrastructure Road, Rail, Air, Telecoms Water, Electricity, Sanitation and Waste Services Some Generic Core Issues Access to Raw Materials and Intermediate Inputs Access to Markets Generic Outcomes More Output and Income Growth More Jobs, Better Livelihoods, Less Inequality Better Patterns of Spatial Development Strengthening the Economic Base PUBLIC AND PRIVATE SECTOR INVESTMENT ECONOMIC DEVELOPMENT AND GROWTH Industrial /Commercial Developments Residential Developments Health and Recreational Facilities Education and Training Facilities Tax, Regulatory and Bureaucratic burden Supply of Utilities Supply of Skills Living Conditions Mobility of people, goods, ideas and information Stability and Rule of Law Ease of Doing Business