Research: Competitiveness and economic geography Reply

Our Research posts are about the latest academic research being done in the School of Economics. This week:

A SHIFT-SHARE ANALYSIS OF JOB CREATION BY THE PLATINUM SDI DURING ITS FIRST DECADE (1996-2006).

by Carike Claassen & Prof. Ewert Kleynhans (NWU)

This study evaluates the performance of the Platinum Spatial Development Initiative (SDI) development corridor in South Africa, which was initiated during 1996. Along with descriptive analysis, the study employed shift-share analysis to investigate the economic growth and job creation potential of the manufacturing industries in the SDI region. Analysis of the North West Province was also done to enable comparison with the Platinum SDI. The results revealed that development in the Platinum SDI since 1996 was slightly better than the rest of the province. Economic growth in the Platinum SDI was in most cases better than the rest of the province, and the industrial mix and regional competitive share effects had strong effect on employment and growth in specific sectors.

Prof. Kleynhans and others began their research on issues of spatial economics during 1996 with the instigation of SDIs by the South African government. The then Potchefstroom University won a research tender from the Development Bank of South Africa (DBSA) and the Industrial Development Corporation (IDC) to identify possible industrial ventures that could settle sustainably along the N4-highway between Gauteng in the east and Lobatsi in Botswana. The stretch of land about 100 kilometre wide through the province became known as the Platinum SDI. They formed the Platinum Consortium in conjunction with a private company and identified about 50 possible industrial ventures. An agricultural study identified about 5 ventures, while 30 mining ventures and 150 tourism ventures were identified. This also led to a Socio- Economic Analysis of the Gauteng- North West Spatial Development Initiative commissioned by DBSA in 1998 by the Potchefstroom University, a study on Small and Micro Enterprises in North West Province for the CSIR, as well as an Industrial Analysis of the Johannesburg International Airport.

During 2003 Kleynhans, Naude´ and Van der Merwe of Pothefstroom University published a five year evaluation on the viability of the Platinum SDI in the December issue of Development Southern Africa. The article gave a historical synopsis of industrial policy, as well as regional industrial development policy in South Africa. Thereafter the trade and industrial policies of the North West Provincial Government were discussed in the contexts of its economic development strategies. Finally it evaluated the SDI’s viability and future potential.

Some researchers felt that the authors of the 2003 article were biased towards the government because they acted as economic advisors to the government at that time, and in 2011 Drewes and Kleynhans of North-West University published a minority report in the Journal of Economic and Financial Sciences, they called a Critical Commentary. In this article they stated that the Platinum SDI and Mmabatho IDZ is nothing more than an impossible dream. They made a 10 year evaluation and found that the initiative did not lead to any additional job creation or economic growth.

The Commentary didn’t undertake any quantitative analysis, except for some comparisons of the Human Development Indices (HDI) of the regions within the Platinum SDI and those managerial districts of North West Province outside the SDI; employment growth rates and value added. In the latest edition of the Journal of Economic and Financial Sciences Nov 2012, Kleynhans and Claassen of the School of Economics at North-West University tried to prove their hypothesis that the SDI failed, using Shift-Share Analysis. They wished to show that it made no difference in the province’s ability to create employment, and neither did it advance any economic development. Their study could however not fully substantiate this hypothesis and had to reject it. The empirical results revealed that there were significant positive outcomes and that growth and development in the Platinum SDI were in fact higher than the rest of the North West Province.

The study found that economic growth was in most cases better in the Platinum SDI region than in the rest of North West Province. The industrial mix had a strong effect in specific sectors, but then the difference between the SDI and the rest was not significant. Difference in other economic development indicators, like the Human Development Index (HDI), the Gini-Coefficient and urbanisation rate, was also not significant. Employment creations due to the regional competitive share effects were also stronger in the SDI Region. The SDI experienced some negative growth in this regard during the last period, but compared to the previous years it was insignificant. In total the results revealed that development in the Platinum SDI since 1996 was slightly better than the rest of the province. Sectors with the highest potential for sustainable future growth were wood and paper products, food and beverages, electronics, furniture and metal products, and they merit attention in future development initiatives. The strong competitive share and growth potential of transport equipment, non-metal as well as metal products and furniture sectors were significant, and merit further attention in future.

The results of this research were presented at an international conference in Boston, USA and are published in the current issue of the Journal of Economic and Financial Sciences vol. 5(3), with the title: A Shift-Share Analysis of Job Creation by the Platinum SDI during its first decade (1996-2006).

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