Abstract
Since the declaration of the Millennium Development Goals in 2000 and the Sustainable Development Goals in 2015, South Africa's policies have aimed to accelerate economic growth and transformation. However, despite 30 years of democracy, the country still faces challenges, including rising unemployment and high-income inequality, with nearly 13.2 million people living in extreme poverty. The introduction of development economics in South Africa aimed to break poverty and lessen unemployment and inequality. The 1994 Constitution aimed for inclusiveness, and macroeconomics strategies were introduced to ensure its success, such as the Reconstruction and Development Programme (RDP), Growth, Employment and Redistribution (Gear), New Growth Path and the National Development Plan (NDP). Despite the efforts of these frameworks, many have faced significant challenges that prevented them from achieving their intended goals. To support macroeconomic strategies, several microeconomic strategies were introduced, including the Microeconomic Reform Strategy, which aimed to address socio-economic challenges by 2005, and the Local Economic Development (LED) initiative.
LED serves as an essential strategy to improve local economies in addressing the high unemployment rates, poverty, and inequalities faced by most South African localities. Although the mandate of LED as a development policy is evident in the Constitution and the White Paper, it is unclear how LED contributes towards localities' economic development. It is unknown whether the slow development of LED arises from a slow adoption of the framework or if the LED is not regarded as an essential tool for wealth creation towards improving the livelihoods of South Africans.
The study employed a sequential explanatory mixed method, combining quantitative and qualitative research methods, starting with quantitative analysis and subsequently incorporating qualitative insights. The quantitative analysis of the eight metropolitan municipalities of South Africa was employed from 2010 to 2022. The study used descriptive statistics to measure correlations between the dependent and independent variables, and the Data Envelopment Analysis (DEA) method and dynamic DEA were used to measure LED's effectiveness in improving citizens' welfare. The input was the economic development budget as a proxy of LED, while the welfare was measured using unemployment and human development indicators. The results illustrate that as unemployment rises, the government seemingly increases the budget allocation (spending) towards economic development and planning for the metropolitan area, additionally, there is a weak but positive relationship with life expectancy and income.
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In addition, the data assessed the efficiency of metropolitan municipalities, revealing that only three were thoroughly efficient. Three showed improvements and efficiencies in some areas, while two were not operating at optimal scale and had inefficiently allocated their resources. This indicates that most municipalities need to develop better strategies to allocate resources for programmes aimed at improving their citizens' standard of living, as the reason behind socioeconomic challenges may result in the inability of certain metropolitan municipalities to employ their resources efficiently. The qualitative analysis from the focus-group interviews revealed that LED aims to improve citizens' welfare by creating jobs and ensuring equal opportunity. However, challenges like lack of skills, political interference, and funding may hinder its success. The National Framework for LED (NFLED) promotes economic growth but is not widely used. Prioritising LED could potentially promote economic development in municipalities.
The study recommends that the National Treasury should legislate the NFLED, which consists of six key development guidelines. This legislation will help the Treasury address potential non-compliance issues by municipalities. Implementing the NFLED has the potential to stimulate local economies and enhance the living standards of citizens by promoting LED units. Skill deficits are significant barriers to the growth of LED. As noted by the focus group and literature, many municipal officials lack the necessary LED expertise. This lack of capacity leads to poor policy implementation and service delivery, negatively impacting local communities. To address this issue, the study recommends that municipalities should conduct skills audits within their LED units. Identifying and bridging these skill gaps will foster LED growth and ensure experts can execute beneficial projects for metropolitan citizens.
The creation of long-term employment opportunities is a key goal of LED, which aims to improve the welfare of citizens. However, many municipalities tend to focus on generating temporary jobs through this initiative. The Expanded Public Works Programmes (EPWP), for example, offer temporary employment lasting up to six months. As a result, municipalities are encouraged to prioritise job-guaranteed programmes, such as the Community Works Programmes (CWP), which do not have fixed end dates and generally produce more positive effects within communities compared to EPWPs.
Efficient resource allocation within municipalities poses a significant challenge, as only two out of the eight metropolitan areas demonstrated efficiency across all components of the DEA. Given this challenge, the study recommends that municipalities implement DEA or other efficiency models as part of an internal monitoring system. This approach would help improve efficiency and enhance reporting to the Auditor General.