Incentives will Counter Market Failures

Gerda Moolman MPL

DA Northern Cape Spokesperson for Economic Development

Honourable Speaker, Honourable acting Premier, Honourable members, guests in the gallery, the media

Covering 30.5% of South Africa’s land surface, the Northern Cape is the largest of the country’s nine provinces. Yet, its contribution to the South African economy has remained minimal and somewhat stagnant.

Aside from the global economic slump, provincial government likes to lay blame on the province’s vast size and scarce population, as a crutch impeding our development. Formulas to calculate our equitable share continually work against us and we always seem to be at the bottom end of the receiving stick – this they imply is the curse of the unique Northern Cape landscape.

I would, however, like to propose an alternative view. What if the Northern Cape’s so-called crutch was in fact not an obstacle in the way of our development but rather an asset – after all, we have substantial wealth of natural resources and space at our fingertips and, like the rest of the country we have enjoyed nearly two decades of political stability, as well as the rule of law under our constitution that protects the rights of individuals and property. In other words, we have the potential to do better. And if this is the case, then it would mean that it is not the Northern Cape’s natural inheritance standing in the way of our success, but rather the plans, strategies, policies and the management thereof, currently being implemented by our provincial administration.

Let us consider for a moment that despite countless commitments, the Northern Cape Department of Economic Development has not enjoyed overly significant achievements.

Don’t get me wrong, the DA concedes that there have been some successes and that there are worthy initiatives. These include, amongst others:

• Big international events like the Wildlife Symposium, the Maloof and the Bloodhound project, which hold tremendous tourism spin-offs.

• Increased enterprise development in the form of support being offered to SMME’s and cooperatives.

• And the Red Tape Reduction Programme.

However, getting back to my point, I wish to re-emphasize that in spite of small project sized successes, the provincial administration is still failing to harness big economic outputs. By this, I am referring to achievements that would ultimately impact positively on the province’s low economic growth rate; on the province’s Gini coefficient, which indicates high levels of inequality; on the province’s minimal contribution to the national economy; and ultimately on our unemployment rate.

Without criticizing this department, we must ask why? Why, after seventeen years of good intentions, has this department failed to bring about a true economic revolution in the Northern Cape? What is it that is holding us back?

1. Firstly, I would like to point out that progress in priority areas is, to a certain degree, sluggish. Many initiatives announced in Hon. Block’s 2009 budget vote, are merely repeated on a yearly basis.

For example, the Diamond Strategy, the development of a manufacturing centre, the implementation of the INSPIRE project, and the establishment of a One-Stop Mining House in Namakwa, were already identified as high impact economic interventions in the 2008/2009 financial year. Roll-out, however, has been slow and despite the three years that have since passed, in many instances these initiatives illustrate only a small layer of annual growth. As such these initiatives are still in progress and are still not ready for the picking. To a certain degree, this is understandable, as some of these initiatives are quite complex. Nonetheless, it is the DA’s view that there is room for improvement and that the department should work towards finalizing projects at a more accelerated pace. This will free up capacity for new initiatives, and also allow for completed initiatives to be evaluated in terms of value for money.

2. Secondly, we need to look at both wasteful and non-prioritized expenditure.

– In his 2010/2011 general report on the Northern Cape provincial government, the Auditor-General highlighted irregular expenditure to the value of R1,32 billion. Lax auditing and accounting practices and outright corruption in many government departments, means that large sums of money go unaccounted for. The DA believes that public money needs to be managed wisely in ways that help grow the economy for the good of all. This means putting strong measures in place to ensure rational spending practices at both our provincial and local government levels.

– In the same vein, the DA wishes to highlight out concern regarding the Northern Cape Economic Development Agency (NCEDA). The agency was established in response to the challenge of translating high level investment business opportunities in the area into actual business operations that may contribute directly to economic growth and social equity for the people of the Northern Cape. However, in just under two years since the NCEDA commenced its operations, it has had little impact and at least two of the projects falling within the agency’s scope, are under administration. These include the Riemvasmaak Citrus Project and the Schmidtsdrift Community Project. Steps must be taken to prevent this agency from simply guzzling money at the expense of our communities. – At the same time, the state has not spent enough on capital formation involving basic infrastructure such as roads, railway lines, dams and power stations. We acknowledged that this is the competence of the Department of Roads and Public Works, but at the same time, this inhibits economic growth in the long-term, and cannot therefore be dealt with in silos. Whilst we appreciate cash injections into infrastructure from national, we believe that this department should be doing more to attract investors willing to invest in provincial infrastructure.

3. Thirdly, it is the DA’s view that there is far too much state involvement in the economy.

– According to the Quarterly Labour Force Survey all new job creation in the economy in 2011 was the result of increases in public sector employment. While government-funded programmes have the potential to provide some relief and help job-seekers gain valuable marketable skills, they do not provide sustainable, long-term solutions to South Africa’s unemployment crisis. A recent survey by the South African Institute of Race Relations (SAIRR), for example, noted that the average job created through such initiatives lasted just 46 days. This said, while the state has an important role to play in facilitating the structural transformation of the economy, it should not be the employer for the people.

– Encouraging the development of new industries always runs the risk of market failures, and a key role the government can play is to facilitate the exploration of new areas by absorbing some of the associated risks and costs and provide inputs that cannot be provided by the market.

It is our view, however, that many sector interventions go too far. Instead of tackling a market failure though incentives for business, they promote state involvement right through to the sales process. Our administration has thus done too much of what the state should not do by increasingly crowding out the private sector, and not enough of what it should do in the way of creating an enabling environment for growth through investment in infrastructure and the rational management of state finances.

This will require bold leadership and a new direction for the economy that focuses on bringing the marginalised into the mainstream, opening opportunities for entrepreneurship, encouraging the expansion of labour-absorbing industries, and building on our competitive advantages by engaging our partners in Africa and beyond. Thank you.

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