Maximising Shared Growth

The Local Economic Development Initiative

Presentation to LED Conference KZN17 March 2009

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Contents

The Challenge at Hand LED Practice to Date Time for a New Approach: The DBSA LEDI Integration with Other Initiatives

National Departments The rest of the Bank

Conclusion

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The Challenge at Hand Since 1994, South Africa has made great strides towards achieving many

of the socio-economic goals outlined in the RDP. However, millions of South Africans continue to live in poverty, excluded from the benefits of increasing prosperity

The characteristics of the national as well as local space economies are very important enablers or disablers of economic growth as well as social and economic inclusion

Have to find a way: To ensure that the economies of our major urban areas act as spaces of

inclusion not exclusion, of economic integration and not growing marginalization and inequity

Of spreading opportunity through maximizing the economic potential of areas outside the dominant cores, through fostering local space economies that drive shared growth

To take advantage of high-impact, quick-win investment opportunities that could have a catalytic ripple effect on economic growth

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What is LED?

The purpose of local economic development (LED) is to build up the economic capacity of a local area to improve its economic future and the quality of life for all.

It is a process by which public, business and non-governmental sector partners work collectively to create better conditions for economic growth, employment generation and sustainable development as a whole.

LED Practice to Date

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The Information Gap Most localities have yet to adequately map their competitive and comparative advantage

whilst the data analysis underlying the National Spatial Development Perspective (NSDP) still needs localisation and concretization. In addition, some municipalities still do not have a full understanding of the ownership of land and other assets in their area.

The Strategic Gap A focus on projects rather than strategy; different understandings of what constitutes LED;

constraining paradigms (false dichotomy of pro-poor or pro-growth) The Financial Gap

Many Category B & C municipalities struggle to access and/or spend MIG and other government grants due to internal capacity constraints whilst a poor credit rating and weak revenue base bar some from accessing existing loan instruments.

The Institutional Gap In the majority of municipalities as well as some other spheres, the requisite capacities to

develop and/or implement development strategies is not in place e.g. business intelligence systems, LED expertise, infrastructure investment planning and stakeholder management capabilities etc. Latter particularly important within a context of multi-jurisdictionality

Various government departments and agencies have instigated a number of support measures aimed at tackling different pieces of the puzzle - but these tend to be purely consultant driven All rely in one form or another on the recipient entity having the requisite capacity to draw-upon and strategically align different instruments to build key networks and drive a coherent development agenda – this capacity often does not exist Even where the capacity does exist, it’s often too caught-up in managing day-to-day imperatives to find time to stand back and look at things from a fresh perspective

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Time for a New Approach

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Role of DBSA in LED

Local Economic

DevelopmentInitiative

StrategicAdvice

ResourceMobilisation

ProcessFacilitation

Purpose of LEDI

LEDI funds catalytic economic infrastructure projects as well as the development and implementation of economic turn-around strategies within areas of economic potential with the aim of stimulating a reconfiguration in national and local space economies in order to foster shared growth & financial sustainability

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Support for Project and Programmes

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Projects must be: • Self-sustaining in the long-term• Boost local Comparative Advantage• Decrease poverty & unemployment

SM & SC will: • Originate projects & manage their Implementation • Economic & financial modeling

LEDF provides:• QA of applications • Preparation grants & loan finance

Economic Turn-Around Strategies(Select, targeted interventions in high-impact areas)

Outcome Indicators (LEDF)• % increase in GVA• # of ‘permanent’ jobs created

Output Indicator (SM&SC)• % of planned projects completed on time & on budget

Outcome Indicators• % increase in GVA• Y-on-Y increase in revenue• Client cost : income ratio• # of jobs created• % increase in participation rate of vulnerable groups

Catalytic Economic Infrastructure(Clients unable to access

existing instruments)

Strategy Development

Client must have/develop:• An economic turn-around strategy, infrastructure investment plan & OD Programme• ID quick-wins

LEDF provides:• TA grants • Economic modeling• Program mgt support

Program Development

Client must:• ID priority projects• Project & programme planning• Implement quick-wins

LEDF provides:• Preparation grants • Crowd-in 3rd party funding • Infrastructure loan finance• Program mgmt support

Program Implementation

LEDF will provide:• Client PMO• Infrastructure PGs/loans • Non-infrastructure TAs by exception

Client PMO will manage:• Stakeholder mgmt• Project roll-out• OD roll-out• Funding applications

Output Indicators• % of quick-win & ED project completed OTOB• % spend of MIG & other grant funds• Project co-funding ratio• Duration of member participation in social compacts• % of action learning projects completed

Primary Criteria

Economic Potential, Governance & Administrative Leadership and Social Capital

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Funding Criteria

Primary: What is the likelihood of success? Economic Potential

50 points Governance & Administrative Leadership

25 points Social Capital

25 points Threshold = 60/100 (60%)

Secondary: Infrastructure Projects Catalytic Effect Spatial Impact Fiscal Capacity Financial Sustainability

Secondary: ED Programmes Quality Strategic Frameworks Development Impact Stakeholder Support Fiscal Capacity Financial Sustainability

Key drivers of Competitive Advantage

Comparative Advantage

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Strategic Advice

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Intelligent Visions (1)

Understanding the local space economy Comparative advantage?

Economic potential Natural assets Addressable markets

» Linkages, flows & migration Services & utilities Labour & skills Levels of Poverty & disease etc

Past constraints and new opportunities? How to enhance the drivers of Competitive Advantage

Governance Administrative leadership Social capital

How to maximise impact Where to intervene to get the greatest ‘bang for your buck’ Key relationships between interventions

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Intelligent Visions (2)Linking strategy to realistic targets and outcomes

The LEDI Regional Economi Model uses economic multipliers to calculate the impact of an investment on the regional economy

The multipliers are based on the available provincial multipliers, adjusted for the known leakages of the municipal economy

There are three types of economic impact that such multipliers capture: Direct effects - the changes (growth) in economic activity as a direct

consequence of the investment in the region (e.g. a new furniture factory - its output increases that of the region)

Indirect effects - growth in the business of suppliers to the directly impacted businesses (e.g. increased business of the suppliers of raw materials and services to the new factory)

Induced effects - economic growth stimulated by the spending of additional workers employed as a consequence of the above two effects

The multipliers calculate the economic impact across the different sectors of the region’s economy

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Intelligent Visions (3)

Linking strategy to space is key Ensuring spatial development frameworks (based on

sustainable development principles) act as a catalytic platform for collective action SDFs must Integrate all current & future investments re growth,

infrastructure & sustainable resource use into a simple, single visual representation of the To Be state for the local area.

Requires adequate GIS-based business intelligence platforms to be in place

Processes for developing SDFs, LED Strategies and CIPs must be integrated

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Influencing the Private Sector

Gearing Private Sector Investment Appropriate, spatially referenced fiscal & incentive

frameworks Availability of public sector risk mitigation instruments Efficient administrative processes Transparent procurement & contract management

processes Enforcement capabilities

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The Importance of Access

Increasing access to economic opportunities Transport infrastructure Densification/compaction Skills Information

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Localisation is Key

Ensuring Localisation within the Context of Market Integration Create local markets

Forging supplier value chains/distributional networks between local SMMEs and large companies

Improving the power to consume by: Increasing the affordability and availability of commodities Providing incentives for the use of local labour

Fostering local social & economic networks as well as innovative platforms for trade & exchange

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Strong Institutions Imperative

Institutional breadth Strong leadership

Ability to link visions to implementation Willingness to make hard trade-offs

Trust-based networks Institutional depth

Strategic Planning Capability Portfolio & Performance Management

The dependent relationships between LED projects, increased institutional capacity and revenue enhancement need to be mapped and managed Reliant on building adequate programme management capabilities

within municipalities

Revenue & Financial Management Building municipal capacity to direct and manage financial flows

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The Bottomline

New forms of intermediation required Building trust-based relationships between key players

Private/private Private/public Private/public/community

Structuring productive partnerships SPVs A ‘fresh pair of eyes’

Increasing access to opportunities and markets Fostering critical mass

Clusters Social capital

Unlocking investment

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ProcessFacilitation

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Roles

Facilitating the strategy development and implementation planning process Identification of key systemic intervention that will provide the maximum impact

Harnessing People Power The multi-jurisdictional, multi-stakeholder nature LED interventions require the

establishment of social compacts to maximise co-ordination and ownership Brokering relationships between the state and the local private sector Building relationships of trust

Stakeholder engagement processes must maximise voice and agency

Bolstering local institutional capacity Advising key political and administrative leadership Identifying and seeking to address critical institutional gaps

Maintaining Momentum Driving the programme management process Building credibility quickly

Benefits of optimising linkages between LED, service delivery choices and financial sustainability clear Quick wins crucial

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The Support Process: Catalytic Projects

LEDF Phase 1: Project Initiation

Area assessment of economic potential

& need

Review of current LED Strategies, SDF and CIP

Pre-feasibility assessment

Costing of TAsupport required

Stakeholder MoU

Approval

Appraisal Report

Costing

QualityAssurance

Feasibility Study

Identify institutionalMechanisms

Required

High-levelInstitutional

Review

Loan Application

ForDesign &

Construction

Crowd-inFunding &

Partners

Source SPs for

FeasibilityStudy

Deploy Project Manager

Approval

Roll-outProject

EstablishRequisite

InstitutionalCapacity

ManageStakeholders

Approval Process

Programme Planning & ManagementCrowd-in 3rd Party Funding

Approval Process

PerformanceMonitoring

Financial Management, Disbursements, Procurement & Contract Management

FinancialModeling

Overall Financial Management &Disbursements

Project Implementation

Quality Assurance

PMO

ExpertPanel

ServiceProviders

Project Initiation Project Preparation Project ImplementationPhase 1

ApprovalPhase 2

Approval

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The Support Process: ED Programmes

LEDF Phase 1: Project Initiation

Assessment of economic potential

& need

Gap analysis of current strategies & initiatives

Stakeholder MoU

Costing of preparationsupport required

Identification of spatiallyneutral quick-win

infrastructure projects

Approval

Appraisal Report

Costing

QualityAssurance

Develop Strategies & Programmes

ProgrammeSequencing

Develop &Cost OD

Programme

InfrastructureInvestmentPlanning

& Modeling

Crowd-inFunding

RevenueEnhancement

Strategy

LEDIPhase 2

Application

Planningof Priority Projects

InstitutionalCapacity

Assessment

GDS/SDF

EstablishClient PMO

Approval

Roll-outPriorityProjects

Ongoing Project

Planning &Funding

Applications

Roll-out ODProgramme

Approval Process

Programme Planning & ManagementCrowd-in 3rd Party Funding

PMO Set-up & Deployees

Approval Process

PerformanceMonitoring

Financial Management, Disbursements, Procurement & Contract Management

FinancialModeling

Overall Financial Management &Disbursements

Project Implementation

Quality Assurance

PMO

ExpertPanel

ServiceProviders

Programme Initiation Programme Preparation Programme ImplementationPhase 1

ApprovalPhase 2

Approval

Roll-outQuick-winProjects

Ongoing Roll-out ofQuick-winProjects

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Resource Mobilisation

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Crowding-in Funding

Assisting municipalities access existing government finance

Facilitating investment by national private sector funding institutions

Facilitating investment by international funding agencies

Helping municipalities build relationships with local private sector investors

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Innovative funding instruments

Strategic combination of DBSA technical assistance grants and loan finance LEDI Loan largely targeted at municipalities unable to access

existing commercial or concessional instruments LEDI also helps structure and facilitate access to existing bank

and 3rd party funding

LEDI has a flexible approach to loan recovery – to match enhanced revenue resulting from the project/programme

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Innovative Funding Instruments

Loan Term to Maturity - years0 3 5

Re

- p

aym

en

t S

tre

am

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Grant funding

YEARS 0 TO 3 - Moratorium on interest and capital repaymentYEARS 3 TO 5 - Interest payment only, moratorium on capital repaymentYEARS 5 TO 15 - Interest and capital repayments

… simulated absorption capacity leveraging fiscal disbursements …

Grant funding

Municipal Revenue

Municipal Revenue

Municipal revenue line

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Integration with Other Initiatives

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Points of Integration

Project Specific Support AgreementsOther Stakeholders – DWAF, DoH, Transnet, Eskom et al, Road Agencies, other DFIs, Private Sector

Partnership AgreementsKey National Stakeholders - NT, OoP, DPLG, DTI, IDC, DEAT & DLA

MOUClient Stakeholder Steering Committee

Programme Charter DBSA Team – LEDI, SM, SC, SA Ops

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National Departments

Common approach to socio-economic profiles to avoid duplication Presidency & DTI

Common approach to economic modeling DTI

Spatial trends Presidency, SA Cities Network

Co-operation in intervention areas dplg (URD) Presidency DTI/IDC

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Donor Agencies

Co-operation in launch sites GTZ DFID still finalising focus of next bi-national agreement

Conclusion

It is new initiative looking at local economic development holistically

Shift away from small poverty alleviation to large catalytic impact

Stresses integration across municipal functions Assist municipalities who do not have access to normal

loans Provides a learning curve

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Questions?