City of uMhlathuze Local Municipality50
The City of uMhlanhuze Local Municipality (which comprises the secondary cities of Richards Bay and Empangeni) has the greatest location attractiveness. This municipality offers investors both openness and market-size spillovers to investors.
The municipality’s economy grew at an average annual rate of 0.5% between 1996 and 2017. Most of its formal-sector employment is generated through construction (7.2%), education (7.8%), land and water transport (5.7%), metal products, machinery and household appliances (4.5%), and other business activities (12.7%). The municipality’s highest location quotient is for manufacturing (2.17), followed by transport (1.48) and agriculture (1.26). A value above one means the municipality has a comparative advantage (taking production and employment into account) over other municipalities in those sectors. The region is involved in the manufacture of basic metals, fabricated metal products, machinery and equipment, and office, accounting and computing machinery.
Apart from manufacturing, land and water transport made the greatest contribution to the gross value added (GVA) in 2017. The municipality is home to the Richards Bay Industrial Development Zone (RBIDZ), which offers access to the port of Richards Bay and strategic inland links through the R43 and N2 roads.
Emfuleni Local Municipality
Emfuleni Local Municipality offers market-size spillovers to investors.
The Emfuleni Local Municipality’s secondary cities, Vanderbijlpark and Vereeniging, are located in the southern part of Gauteng. They have access to a well-maintained road network and are strategically located near the N1 freeway linking Johannesburg and Bloemfontein. The municipality’s largest location quotient is in manufacturing (1.96), followed by financial intermediation, insurance, real estate and business services (1.10) and construction (1.04). The majority of formal-sector employees work in the manufacturing sector, specifically the manufacturing of basic metals, fabricated metal products, machinery and equipment, and office, accounting and computing machinery (10.3%). Around 9.6% of employees are in the retail trade and repair of personal household goods sector 9.6%, and 13.3% are in business services.
The municipality’s average annual GDP growth rate between 1996 and 2017 was 0.8%. Sectors that contributed most to GVA in 2017 were manufacturing, real estate and education.
Msunduzi Local Municipality
The Msunduzi Local Municipality offers market-size spillovers to investors.
The municipality consists largely of Pietermaritzburg and is part of two major development corridors, namely the industrial corridor between Durban and Pietermaritzburg and the agro-industrial corridor between Pietermaritzburg and Estcourt. Moreover, the municipality is strategically placed along the N3 freeway and is connected to King Shaka International Airport and the port of Durban.
The municipality’s economy grew at an average annual rate of 2.2% between 1996 and 2017. The NDP asserts that the region could enhance national growth through its port and industrial and agro-processing hubs.51 The Msunduzi Local Municipality has a comparative advantage in a number of sectors: electricity, gas and water supply (1.45), community, social and personal services (1.28), transport, storage and communication (1.20), agriculture (1.09), construction (1.02) and manufacturing (1.00). The education industry employs 9.7% of formal-sector workers, with the health and social work sector at 9.4%, retail trade and repair of personal household goods at 8.8% and business services at 12.9%.
Sectors that contributed most to the municipality’s GVA in 2017 were retail trade, land and water transport, other business activities, public administration and defence activities, education, and health and social work.
Stellenbosch Local Municipality
The Stellenbosch Local Municipality offers urbanisation-economies spillovers to investors and is located next to the Cape Town metropolitan area.
Its GDP grew at an average annual rate of 2.9% between 1996 and 2017. The Stellenbosch district boasts a comparative advantage in many sectors: agriculture (2.08), manufacturing (1.45), construction (1.34), financial intermediation, insurance, real estate and business services (1.07), wholesale and retail trade, hotels and restaurants (1.04) and community, social and personal services (1.00).
The largest contributors to the district’s GVA in 2017 were financial intermediation, insurance and pension funding and activities auxiliary to financial intermediation, and the manufacture of food products, beverages and tobacco products. The retail and wholesale trade sector and business services sector have the highest formal-sector employment rates in the municipality (16.0% and 11.7%, respectively).
Mogale City Local Municipality
Mogale City Local Municipality offers market-size spillovers to investors.
Situated in the West Rand region of Gauteng, this municipality forms part of the development around the mining belt between Johannesburg and Krugersdorp. It has strategic transport linkages to both Johannesburg and Pretoria, and a large urban concentration between Krugersdorp and Kagiso. Although Mogale City recorded an average annual GDP growth rate of 0% between 1996 and 2017, it has a location quotient above one in various industries: manufacturing (1.56), electricity, gas and water supply (1.11), construction (1.14) and community, social and personal services (1.19).
Most formal-sector workers are employed in business services (15.9%), with 7.6% in the manufacture of basic metals, fabricated metal products, machinery and equipment, and office, accounting and computing machinery, and 8.9% in the retail and wholesale trade. The largest contributors to GVA (in 2017) were financial intermediation, insurance and pension funds and activities auxiliary to financial intermediation, and health and social work.
Metsimaholo Local Municipality
The Metsimaholo Local Municipality’s main urban area is Sasolburg. The district’s proximity to Johannesburg provides an opportunity for investors to make use of the localisation-economies spillovers created in this municipality.
The municipality’s average annual growth rate between 1996 and 2017 was 3.2%, and the largest contributor to GVA in 2017 was the manufacture of fuel, petroleum, chemical and rubber products. This sector also formally employs the most workers (14.2%), followed by construction (9.3%). Another significant contributor to GVA is the mining of coal and lignite. The municipality’s location quotient values for 2017 reflect this, with manufacturing at 3.21, mining at 2.11 and electricity, gas and water supply at 2.10.
Govan Mbeki Local Municipality
The Govan Mbeki Local Municipality is located in Mpumalanga, with Secunda its main urban area. It offers market-size and localisation-economies spillovers to investors.
The municipality’s economy grew at an average annual rate of 0.9% between 1996 and 2017. The largest contributors to GVA in 2017 were the manufacture of fuel, petroleum, chemical and rubber products, and the mining of coal and lignite. Around 10.0% of formal-sector employees work in other business services and around 9.6% in agriculture. The municipality had a 2017 location quotient above one in the following sectors: mining (4.02), manufacturing (2.31) and electricity (1.38).
Newcastle Local Municipality
Newcastle is a secondary city located in KwaZulu-Natal which offers market-size and localisation-economies spillovers to investors.
The municipality’s GDP increased at an average annual rate of -0.1% between 1996 and 2017. Its comparative advantages are in manufacturing (1.51), electricity (1.14), agriculture (1.04) and community services (1.08). The sector that contributed most to GVA in 2017 was the manufacturing of metal products, machinery and household appliances. Business services (13.4%) have the highest percentage of formal-sector employees in the municipality, followed by retail (11.4%) and construction (6.4%).
Mossel Bay Local Municipality
The Mossel Bay Local Municipality offers urbanisation-economies spillovers to investors. It is situated midway between the port cities of Cape Town and Port Elizabeth, along the N2 freeway.
The municipality’s economy grew at an average annual rate of 6.3% between 1996 and 2017. Its highest location quotients are for electricity (5.90), construction (1.75), agriculture (1.59) and manufacturing (1.14). The majority of formalsector employees work in other business activities (19.0%) and in retail (12.1%). The largest contributor to GVA (in 2017) was the supply of electricity, gas, steam and hot water.
City of Mbombela Local Municipality
Mbombela, the capital of Mpumalanga, offers market-size spillovers to investors.
The municipality’s average annual growth rate between 1996 and 2017 was 4.0%, and the largest contributors to GVA in 2017 were wholesale and retail trade, finance, public administration and education. The education sector also formally employs 9.2% of workers, whereas agriculture employs 10.0%, other business activities 14.2% and the retail sector 9.5%. The municipality’s location quotient values for 2017 reflect this diverse range of sectors, with electricity at 1.53, trade at 1.43, agriculture at 1.11, construction at 1.08, manufacturing at 1.05 and community services at 1.00.
Knysna Local Municipality
The Knysna Local Municipality offers urbanisationeconomies spillovers to investors and is situated between George and Plettenberg Bay.
The municipality’s GDP increased at an average annual rate of 4.1% between 1996 and 2017. Its comparative advantages are in agriculture (which includes fishing) (1.27), construction (3.54) and trade (1.57). The sectors that contributed most to GVA in 2017 were construction and retail trade. Construction (13.7%) has the highest percentage of formal-sector employees in the municipality, followed by hotels and restaurants (11.5%) and other business activities (10.9%).
Steve Tshwete Local Municipality
The Steve Tshwete Local Municipality’s main urban area is Middelburg in Mpumalanga. The district is located between Johannesburg and Mbombela and offers an opportunity for investors to make use of the market-size and urbanisation-economies spillovers created in this municipality.
The municipality’s average annual growth rate between 1996 and 2017 was 2.6%, and the largest contributors to GVA in 2017 were the mining of coal and lignite and the manufacture of metal products, machinery and household appliances. This sector also formally employs the most workers (15.4%), followed by other business activities (13.1%). The municipality’s location quotient values for 2017 reflect this, with manufacturing at 1.49 and mining at 4.57.
Lesedi Local Municipality
The Lesedi Local Municipality, situated between the N17 and N3 freeways, offers localisation-economies spillovers to investors, which makes it attractive for future economic development.
The municipality’s GDP increased at an average annual rate of 4.8% between 1996 and 2017. Its comparative advantages are in agriculture (1.60), manufacturing (1.48), construction (1.14), community services (1.15) and transport (1.01). The sectors that contributed most to GVA in 2017 were the manufacturing of food, beverages and tobacco products, and finance, retail trade and public administration. Business services (14.6%) have the highest percentage of formal-sector employees in the municipality, followed by retail (9.3%) and the manufacturing of metal products (8.5%).
Emalahleni Local Municipality
The Emalahleni Local Municipality in Mpumalanga offers market-size spillovers. Its particular spatial importance is outlined on the Municipalities South Africa website as follows:
The Emalahleni Municipality is strategically located in terms of the provincial context and transport network. It is situated in close proximity to the City of Ekurhuleni, City of Johannesburg and City of Tshwane Metropolitan Municipalities in Gauteng, and is connected to these areas by the N4 and N12 freeways. These freeways converge at eMalahleni in Emalahleni, from where the N4 extends to Mbombela, the provincial capital, and ultimately Maputo in Mozambique. The N4 freeway, along with the railway line that runs adjacent to the freeway from Gauteng to Mozambique, constitute the Maputo Corridor.52
The municipality’s economy grew at an average annual rate of 1.3% between 1996 and 2017. The Emalahleni Local Municipality has a comparative advantage in two sectors: mining (6.36), and electricity, gas and water supply (2.23). The mining sector employs 22.0% of formal-sector workers, with business services employing 11.8%.
Sectors that contributed most to the municipality’s GVA in 2017 were mining (coal, lignite and metal ores) and the manufacturing of metal products, machinery and household appliances.
Madibeng Local Municipality
The Madibeng Local Municipality in the North West province is strategically located near Gauteng and Limpopo. It also offers a gateway to Botswana via the N4 freeway. The municipality offers urbanisation-economies spillovers to investors.
The municipality’s economy grew at an average annual rate of 4.8% between 1996 and 2017. Mining contributed most to the municipality’s GVA in 2017, followed by education. Correspondingly, the mining sector employs 18.9% of formal-sector workers, followed by business services at 9.9%. The municipality’s location quotient values for 2017 reflect this, with mining having a location quotient above one (3.97).
Bitou Local Municipality
The Bitou Local Municipality is located in proximity to the N2 freeway connecting Port Elizabeth and Cape Town. It provides an opportunity for investors to make use of the urbanisation spillovers created in this municipality.
The municipality’s average annual growth rate between 1996 and 2017 was 6.6%, and the largest contributors to GVA in 2017 were construction, retail trade and finance. The construction sector also formally employs the most workers (14.4%), followed by hotels and restaurants (10.1%) and business services (12.7%). The municipality’s location quotient values for 2017 reflect this, with construction at 4.03, trade at 1.63 and agriculture at 1.44.
Rustenburg Local Municipality
The Rustenburg Local Municipality’s main urban area is Rustenburg, which is also the most populated municipality in the North West province. It offers market-size spillovers to investors.
The municipality’s average annual growth rate between 1996 and 2017 was 0.7%, and the largest contributor to GVA in 2017 was the mining of metal ores, followed by real estate. The mining sector also formally employs the most workers (36.4%), followed by business services (6.9%). The municipality’s location quotient values reflect the role of the mining sector, as only mining had a location quotient above one for 2017 (9.43).
Consolidating the evidence
Economic theory and international evidence show that economic activity is never evenly distributed across a country. People and organisations tend to cluster together in cities to take advantage of the benefits that proximity offers. This chapter has shown that specialised and diversified economies offer cost benefits to organisations and efficiency benefits to workers. Large local markets and openness to international markets attract more people and more organisations. It is easy to arrive at a general recommendation for attracting investment: make it cost-effective for people and organisations to be close to one another. That means developing land for commercial and residential use in ways that encourage density and also lower the cost of connectivity. However, as our brief history since democracy has shown, urban development and renewal are slow and precarious processes.
Special zones and industrial parks are often planned without consideration of urbanisation and localisation economies. Many spatial policies fall into the political trap of trying to spread out economic activity instead of finding ways to agglomerate it. Instead of initiating grand projects with the thinking, ’build it and they will come’, we need to realise that people will always be attracted to safe neighbourhoods with reliable services, good schools, efficient and affordable public transport systems, and functioning hospitals.
More quick wins, particularly for organisations, are possible. Organisations also prefer safety and services but really benefit from reliable and cost-effective transport (refer to flx case study ), as well as connectivity. Investment in roads and information and communication technology infrastructure is paramount. If specific sectors in specific places are to be targeted, the next step would be conducting an input–output analysis of backward and forward linkages, specifically within the context of global value chains.
Looking ahead
Unlocking potential through trusting partnerships
South Africa has always had embedded social and spatial inequalities. The country needs to grow in a more inclusive manner: a process that can be accelerated through targeted investment and a policy environment that supports this vision. In seeking to provide an answer to the question of just where this investment should be targeted, an overriding consideration should be that investment is a scarce resource. For this reason, it must be allocated in the most efficient manner.
The above cities and towns offer various benefits to investors, according to the identified investment themes. Participants in the economy must give these places special attention with a view to unlocking their investment potential, leading to inclusive growth and development. As emphasised in the NDP:
There is also a critical lack of trust between different interest groups which reduces the willingness of economic players to commit to the kind of long-term investments which are needed to generate jobs and the economic returns that would support sustainable (urban) growth.53
Proximity and connectivity at the core of policy development
Proximity and connectivity (to agglomerations) must be at the core of policy development. After all, spatial development needs to focus on enabling people to be pulled into agglomerations through mobility and connectivity. For example, the development of transport infrastructure, in line with the government’s infrastructure plan, is crucial for linking economic hubs across the country.
The NDP points out that numerous spatial opportunities remain unrealised because of a lack of connectivity. In this regard, the NDP prioritises 17 development projects which should act as catalysts for connectivity in the different provinces. Importantly, lower transport costs as well as the rollout of internet and communication technology will enable people to benefit from opportunities in secondary cities and towns as proximity and connectivity are enhanced.
Ultimately, policies must be place-specific or location-specific, and investment should play to a location’s strengths. For example, industrial policy should see to it that global value chain connections are built or strengthened through developing upstream and downstream activities around existing industries. An example of this is creating or expanding agro-processing industries in agriculture-intensive areas.
This article has presented some of the thinking behind, and the methodology used to arrive at the location attractiveness index. It has also identified places where targeted investment and focused policies are likely to bear fruit. The results have shown that places with the greatest potential are close to major agglomerations. A few secondary cities and towns have also featured in the rankings, as they are well connected through road and rail networks as well as transport corridors.
By way of conclusion: Is a ‘new deal’ possible?
Greyling and Mothata argue that the proposed ‘new deal’ of President Ramaphosa must be accompanied by the creation of special economic zones that contribute to the development of secondary cities, with both public and private investment being used to unlock opportunities for growth and expansion.54 The NDP calls this a spatial compact, in which trust is the foundation and broad community engagement and enrichment are recurring themes. Only through compacts that involve business, government and citizens can the slow process of transforming South Africa’s entrenched spatial anomalies start to gain momentum.55