Eastern Cape shows signs of economic recovery, solid growth prospects in 2013

According to development financier, the Eastern Cape Development Corporation (ECDC), Gross Domestic Product (GDP) and provincial output is expected to tread at about 4,2% in 2013. Fixed domestic expenditure is gradually expanding particularly on infrastructure projects such as the Mthatha Airport, the N2 and other initiatives in rail, dams, roads and schools.

"There is talk of the revival of agricultural infrastructure such as irrigation schemes, transport logistics, storage facilities pre- and post-harvest, agro-processing and packaging facilities amongst others. There are ongoing discussions on primary production, rapid movement of goods and services to the markets taking advantage of natural land endowments as well as the province's favourable climatic conditions.

"For example, the corporation has already developed a business case for setting up a province-wide agro-processing industrial initiative. The business case helped the corporation reflect on the most appropriate structural and institutional arrangements," says ECDC chief executive, Sitembele Mase.

The financier has also supported the Eastern Cape Rural Development Agency (ECRDA) with its application to the Development Bank of Southern Africa (DBSA) to access the Jobs Fund. A conditional approval of R91 million has been granted with further conditional commitments from the private sector.

Looming retrenchment

However, ECDC says the recovery comes in the midst of a negative economic outlook for South Africa which has a direct bearing on the province particularly the protracted instability in the mining and agricultural sectors. The looming retrenchment of about 14 000 mineworkers paints a negative picture especially for families which come from the Eastern Cape. Almost 60% of this number could be Eastern Cape workers. Retrenchments will directly and indirectly affect them and their families.

The farm-worker strikes in the Western Cape could have a damaging effect on the prospects of the Eastern Cape economy in terms of job losses and increasing unemployment. Eastern Cape citizens have historical family and economic ties to the Western Cape hence the natural connections and economic dependencies. Any possible retrenchments and dismissal of those workers will seriously affect the economy of the province in terms of unemployment.

"These developments could have a serious effect and hit the rural areas of the province the hardest. They will create pressure on rural municipalities," explains Mase.

South Africa's investment rating downgrades by Moody's Finch as well as Standard and Poor damages access to credit lines and increases the cost of credit with an inevitable effect on consumers. Last year, Reserve Bank governor Gill Marcus noted that net equity outflows totalling some R638 million in October only, could be an indicator of loss of investor confidence. Marcus indirectly attributed this to last year's breakdown of trust, wildcat strikes and instability in the transport sector.

"These challenges require institutions such as ECDC to correctly identify alternative growth sectors to steer the provincial economy towards sustained recovery and growth. To help sustain the current growth path of the province, ECDC has invested about R44 million since 2008 on new growth sectors. Some of these relate to the revival of the pineapple industry, processing and natural fibre.

"The financier has invested in the blue berry corridor production and beneficiation and cassava pilot projects and research. It has also invested on research into the bamboo industry and its potential catalytic beneficial value into bio-fuel, construction, energy as well as food security," Mase says.

Spread the risks and benefits

Mase, the former chief executive of the South African Microfinance Apex Fund (Samaf) adds that the decision to invest in such new growth industries is to spread the risk and benefits of employment creation and skills development. It assists in offloading the burden away from the automotive and manufacturing industries. This is meant to bring stability in the automotive industry and to ensure that it receives the necessary support and that it is able to contribute to the provincial economy without having to consider other social pressures.

He says ECDC is also taking advantage of the economic policy framework to rethink its property investment to leverage on the infrastructure investment programs. The Eastern Cape will also have to move with speed to unlock the already identified natural endowments such as its coastline, seas and heritage to boost the tourism industry.

Mase says it is important that the Eastern Cape makes sustained investments in some of these areas to create sustainable alternative employment opportunities and to mitigate against potential job losses in other parts of South Africa.

"ECDC has researched a list of projects worth more than R750 million as having potential economic benefits. This bears testimony to the re-orientation of entrepreneurship into new growth sectors of the Eastern Cape economy which can create jobs and contribute to GDP," Mase explains.

At the request of the Department of Economic Development and Environmental Affairs and Tourism (DEDEAT), ECDC reviewed the provincial investment promotion strategy to bring it in line with Provincial Growth and Development Plan (PGDP). The review has sharpened the investment promotion strategy as a policy instrument.