The Role of Local Economic Development Agenciesin the South African Local Economic DevelopmentLandscape

Faith Lawrence

# Springer Science+Business Media Dordrecht 2013

Abstract Local economic development agencies (LEDAs) have been initiated tosupport the goals of local economic development (LED) in several developed anddeveloping countries. In South Africa, LEDAs have become established as part of theLED landscape in the country. This article analyses the establishment, existing stateand challenges that confront LEDAs in South Africa. It is argued that the develop-ment agency model potentially has a pivotal role to play in managing, directing andcoordinating economic development activities in certain local spaces. The success ofLEDAs is challenged, however, by several factors including local economic potential,capacity and resource challenges and the institutional readiness of both the agencyand parent municipality to manage local development outcomes.

Keywords Local economic development . Local economic development agencies .

South Africa

Introduction

Local economic development (LED) in the South African governance landscape canbe regarded as one of the most contested and least understood areas of localdevelopment (Trah 2004). It is also one of the most unexplored for its potential inreshaping local territories. For many observers, the practice of LED has been diverse,complex and uneven with limited examples of long term impact and success (Van derHeijden 2008; Rogerson 2010, 2011; McKibbin et al. 2012; Rogerson and Rogerson2012). Internationally, with increased attention placed on addressing the impacts ofglobalisation on national economies, the attention of many policy makers has beendiverted from local and regional interventions. This oversight has resulted in limitedopportunities to explore the potential gains that could be derived from a more

Urban ForumDOI 10.1007/s12132-013-9195-z

F. Lawrence (*)Department of Geography, Environmental Management & Energy Studies,University of Johannesburg, Johannesburg, South Africae-mail: Faith.Lawrence@tiscali.co.za

regional and local development perspective (Meyer-Stamer 2007; Rodriguez-Poseand Tijmstra 2009). For example, Pike et al. (2011) note that while macro-levelperspectives have a rightful place there are significant lessons that can be gleanedfrom economic development experiences at the local and regional level. This in turncan inform the way in which economic policy is implemented at local level. Theworks by Clark et al. (2010), Beer et al. (2003) and Canzanelli (2009, 2011a, 2011b)provide practical examples on how these connections might be made in differentcountry contexts, especially through the vehicle of local and regional intermediaryorganisations which have national linkages but are located to address territorialdevelopment issues. One such support institution which has emerged as an importantrole player at both regional and local level is the local economic development agency(LEDA). With an estimated total of more than 15,000 LEDAs around the worldcurrently operating at local and regional levels, these agencies have “emerged as astrategic stakeholder in unlocking endogenous potential, enhancing the quality of lifeof citizens and improving the socio economic conditions of localities” (Pike et al.2011: 3). The established links of these LEDAs with national development objectivesand LED processes is a key issue for research.

In the case of South Africa, debates around the purpose and role of developmentagencies are relatively recent. Much has been written on the merits and workings ofSouth African LED in general and the potential policy shifts which need to be madein the local government arena (Nel and Rogerson 2005; Van der Heijden 2008;Rogerson 2008, 2010, 2011; Rogerson and Rogerson 2012). The objective in thispaper is to explore the South African experience of LEDAs, situating it within thecontext of LED and local government in general. The article builds on works done byPretorius and Blaauw (2008), Malefane (2011), and McKibbin et al. (2012) on howLEDAs have unfolded in South Africa and their operational environment. The studiesby Pretorius and Blaauw (2008), McKibbin et al. (2012) and South African LEDNetwork (2012) offer case studies on differently capacitated LEDAs and makeimportant connections to the preconditions which need to be in place in order toachieve local and regional economic development objectives. Malefane (2011) seeksto broaden the debate and incorporate stronger connections between LED typeinstitutions and national planning intergovernmental instruments to improve thesystem of local governance as a whole. Whilst the potential of LEDAs is acknowl-edged by all, the key question remains on how to ensure greater understanding andsynergies amongst local economic development stakeholders.

It is against this background that this article analyses the practice of LEDAs inSouth Africa by exploring two distinct typologies of agencies which have emergedover the past years. The paper draws upon both documentary sources related to theevolution of LEDAs in South Africa and key stakeholder interviews. The discussionis organised into four sections of material. The first section locates LEDAs within abroad international context of local economic development. The South Africanexperience of LEDAs is then analysed in three further sections of discussion. Sectiontwo looks at the policy context within which LEDAs are located in South Africa,including the legislative imperatives, operational context as well as key objectivesthey are meant to serve. Section three differentiates the emergence of two sets ofLEDAs in South Africa with differing institutional contexts and processes. Sectionfour provides an overview of the contemporary state, development and challenges

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facing LEDAs in South Africa. The conclusion highlights key emerging lessons forpolicy makers in South Africa concerning the role of LEDAs in the landscape of LEDplanning in the country.

LEDAs within a Local Economic Development Context

As a start point it is necessary to elaborate the context within which LEDAs arelocated. LEDAs operate as implementers and strategic resources for the implemen-tation and practice of LED. Although there is considerable debate surrounding themeaning of LED all definitions share certain common threads, most importantly thatLED is an ongoing process and is driven by local actors from different sectors thatcollaborate and partner to achieve different goals. The World Bank (2006: 1) statesthat: “The purpose of local economic development (LED) is to build up the economiccapacity of a local area to improve its economic future and the quality of life for all. Itis a process by which public, business and non-governmental sector partners workcollectively to create better conditions for economic growth and employment gener-ation”. The German International Development Agency, GIZ, emphasises the explicitrole of firms in the LED arena and views local and regional economic development as“an ongoing process by which key stakeholders and institutions from all spheres ofsociety, the public and private sector as well as civil society, work jointly to create aunique advantage for the locality and its firms, tackles market failures, removebureaucratic obstacles for local businesses and strengthen the competiveness of localfirms” (Ruecker and Trah 2007: 15). The International Labour Organisation promotesthe dimension of decent work and declared “LED is a participatory developmentprocess that encourages partnership arrangements between the main private andpublic stakeholders of a defined territory with the final objective of creating decentjobs and stimulating economic activity” (Van Boekel and Van Logtestijn 2004).Academic scholars of LED such as Helmsing (2001: 3) emphasise the harnessingof different capabilities and defines LED as “a process in which partnerships betweenlocal governments, community-based groups and the private sector are established tomanage existing resources, to create jobs and stimulate the economy of a well definedterritory. It emphasises local control, using the potentials of local human, institutionaland physical capabilities. Local economic development initiatives mobilise actors,organisations and resources, develop new institutions and local systems throughdialogue and strategic actions”.

Notwithstanding the many perspectives on defining LED, the World Bank (2006)stresses all definitions have a number of common guiding principles. These are thatLED is a (1) strategically planned process; (2) based on a territorial approach; (3)locally owned, designed and delivered; (4) best achieved through partnerships bothfor design and implementation; (5) reinforced by integrated government actions invertical and horizontal tiers; (6) is focused on enabling a conducive local businessenvironment for all actors; (7) involves integrated interventions across multiplesectors; (8) involves calibrating interventions in hard, soft and institutional infrastruc-ture; (9) prioritises development and the retention of local businesses and people; and,(10) projects are delivered by all actors, public, private and non-governmental (WorldBank 2006). In reflecting on the contested definitions of LED Rodriguez-Pose and

The Role of LEDAs in the South African LED Landscape

Tijmstra (2009: 349) note that LED is ‘a territorial approach to development’ and thatgiven that geographic dimensions and population size differs from territory toterritory, a flexible approach is needed to suit local conditions. It is this flexibility,they argue, which is inherent in the LED approach and is therefore one of its uniqueattributes.

LEDAs have emerged internationally as an important partner in the LED arena.The international experience shows they have been established mainly by localgovernments to contribute to the process of LED by linking strategic economicdevelopment initiatives with local and regional development objectives. More gen-erally, LEDAs are defined as “legal non-profit structures, owned by the public andprivate entities of the territory. Through the LEDA the local actors plan and activatein a shared way, initiatives for territorial economic development, identify the mostconvenient instruments for their realisation and enhance a coherent system for theirtechnical and financial support” (ILS LEDA, 2009: 2).Through an established,organised and efficient institutional arrangement, LEDAs shape and pursue theattainment of local strategies in a flexible and innovative way. Indeed, LEDAs areseen as effective organisational arrangements for planning and delivery of localeconomic development as well as a ‘flexible, innovative and pragmatic tool for localdevelopment’ (Clark et al. 2010: 21).

Blakeley and Leigh (2010) maintain LEDAs are important catalysts for bothhuman and territorial development with a strong implementation and delivery focus.Canzanelli (2008) stresses the autonomy of a LEDA to organise, facilitate, lead andvalorize local competencies and resources, to achieve sustainable and fair economicoutcomes. More explicitly, the International Link and Services for Local EconomicDevelopment Agencies (ILS LEDA) focuses on two dimensions of economic devel-opment. The first looks at the enterprise support role of LEDAs where through anorganised process, LEDAs assist in business development services and the promotionand support of local entrepreneurial activity. In this regard, financing, businessdevelopment services, business linkages and related incentive promotion initiativeare viewed an essential part of the service offer. The second dimension emphasisesthe promotion and support of inclusive governance where a common response issought for local challenges and economic opportunities and where LEDAs are seen toprovide “the technical capacity of promoting and realising complex projects, initia-tives and partnerships” (ILS LEDA 2009:3). For ILS LEDA the challenge has been tomove beyond the exclusive emphasis on economic development and growth debatestowards a more wide ranging role for LEDAs in addressing territorial and socialinequalities and “the negative impact on the living conditions caused by poverty,unemployment, economic transitions and the disadvantages of the marginal localeconomies in the current global arena” (ILS LEDA 2009: 3).These themes are highlyrelevant in developing and emerging economies and are in contrast to a more ‘marketfacing’ and growth driven approach which is more typical in developed countrycontexts (Rodriguez-Pose and Tijmstra 2009; ILS LEDA 2009).

Irrespective of areas of emphasis, most LEDAs have been established with aspecific economic development objective and geographic focus in mind. They haveplayed key facilitation, coordination, implementation, and connecting roles betweenprivate-public and community sector interests in the context of territorial develop-ment. Clark et al. (2010) note that these development agency-type organisations are

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significant contributors to the planning and implementation of local developmentagendas worldwide. Moreover, they can be instrumental in creating a business-like,and business facing, operational environment in which local economic developmentand regeneration can be effectively delivered (Clark et al. 2010: 19). The criteria forsuccess of LEDAs hinge on context-specific opportunities and endogenous potential.But, for the most part, the unlocking of these opportunities is attributed to theexistence of efficient and effective governance and management systems in order toenable these opportunities to be realised. Other critical success factors include issuesrelating to resource mobilisation and availability and of the effective management offactors outside of the control of LEDAs, such as political factors and global marketdevelopments, strong leadership and, dependent on stage of project implementation,the availability of the right mix of implementation expertise which is a necessaryprecondition for project success. Overall, the combination of these success factors isseen as strongly influencing the outcome of LEDA establishment and operations.

The South African Experience of LEDAs: Legislative Context

The unfolding South African LED record is significant in the wider context of theexpansion of LED in many countries of sub-Saharan Africa (Rogerson and Rogerson2010). As documented by several observers, the South African LED experience ofLED has been diverse and not without its challenges (Nel and Rogerson 2005; Neland John 2006; Patterson 2008; Rogerson 2008, 2010, 2011; Rogerson and Rogerson2012). Through legislative imperatives there has always been in the democraticperiod a continued strong vision for local government as at the centre of servicedelivery and economic action. The 1996 Constitution made explicit the social andeconomic development responsibility of local government (Nel and Rogerson 2005).This was a new consideration for local government in South Africa and brought withit many interpretation and implementation challenges. The White Paper on LocalGovernment (1998) emphasised the concept of ‘developmental local government’and compelled local government to consider the social and economic developmentdimensions in its governance approach. The Municipal Systems Act (2000) intro-duced, amongst others, the system of Integrated Development Planning (IDP) whichrequired the preparation of LED plans as one aspect of this mandatory process forlocal government. The Municipal Finance Management Act (2003) established theoperating context and financial management obligations for local government, in-cluding how funding could be raised as well as the governance arrangements for itsassociated municipal entities, such as development agencies. Most importantly, theNational LED Framework (2006–2011) provided a solid basis on which to launchLED activities and put in place a number of pillars and areas of focus (Rogerson2008). The framework viewed LED primarily as promoting “robust and inclusivelocal economies exploiting local opportunities, real potential and competitive advan-tages, addressing local needs and contributing to national development objectives”(DPLG 2006a: 17). Other more recent policy influences on the LED landscapeinclude the New Growth Path which promotes a sector-driven and production-leddevelopment trajectory (Department of Economic Development 2010) and the Na-tional Development Plan (The Presidency 2011).

The Role of LEDAs in the South African LED Landscape

Reflecting on the relevance of South Africa’s LED emphasis, Swinburn and Yatta(2006) confirm that the World Bank’s guiding principles for LED have all foundexpression both in the South African policy context and practice of LED. Neverthe-less, while some gains have been made, giving effect to this definition has remained ahuge challenge across the country (Swinburn and Yatta 2006). This challenge ispartially linked to the context within which local government found itself by the early2000s. This period following the enactment of critical local government transforma-tion legislation was marked by a number of implementation challenges, many ofwhich were linked to huge service delivery and infrastructure backlogs, the legaciesof non-effective planning and space management during the apartheid period. Thismade it difficult for many municipalities to balance the need for effective andequitable service provision on the one hand and prioritising an enabling environmentfor effective economic development on the other. Further problems related to highinstances of weak economic development capacity and limited institutional support tounlock economic potential in municipal areas. It was within this context of balancingbacklogs and service delivery gaps that an opportunity was identified for develop-ment agencies to make an important delivery contribution to local development inSouth Africa (Bartlett 2012). LEDAs presented the potential of being implementationagents for LED in strategic municipalities which had strong leadership, effectivesystems as well as the most appropriate technical capacity and resources to unlockeconomic development. The right combination of these mechanisms and enablingfactors were confirmed as necessary preconditions for LED success (Nel et al. 2009).

In South Africa, LEDAs are formally seen as a ‘special purpose municipalvehicles’ to promote the function of LED in a defined territory (DPLG 2006a: 5)portraying an explicit implementation function at either local or regional level.Patterson (2008: 14) forwards that one such explicit function involves “‘support incooperation with other stakeholder to improve business confidence in local areas bycreating opportunities for investment”. Operationally, two legislative provisions makethis possible, namely The Municipal Systems Act (MSA) (No. 32 of 2000) and theMunicipal Financial Management Act (MFMA) (No. 58 of 2003). Both these piecesof legislation allow the establishment of municipal entities to undertake a range ofservices on behalf of a municipality. Legally, LEDAs are seen as external mecha-nisms that have a separate legal entity and under Section 86 B of the MSA (2002)provision is made for three types of municipal entities: (1) A private company, whichinvolves a process of incorporation in terms of the Companies Act 61 of 1973, (2) Aservice utility established by way of a by-law or (3) a multi-jurisdictional serviceutility established by way of written agreement between two or more municipalities.Dependent upon local conditions, local and district municipalities have chosen anappropriate legal entity status.

As development agencies have played various roles in the local governance andLED landscape, the DPLG guidelines identify the following as key:

(a) LEDAs provide a way of establishing a formal and legal partnership betweendifferent stakeholders to integrate development efforts and overcome problemsof duplication and lack of coordination

(b) LEDAs are seen as a way of adding value to the current LED systems andresources in place within a municipal area, using a semi-external body

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(c) LEDAs can be focused drivers of the economic development agenda within alocal area, which can raise external resources to support LED

(d) LEDAs have the ability to support specific business sectors or specific geo-graphical areas, e.g. a development corridor (DPLG 2006a; 2006b).

Municipalities may therefore choose to establish a LEDA to undertake a range ofservices on their behalf by applying the Municipal Systems Act, Section 77 (DPLG2006a: 6). Furthermore, it is made clear that the agency’s role is to implement the localeconomic development policy as set out in the IDP. It was made clear that the agencymay recommend policy to elected members, but it is not mandated to make policy onbehalf of those elected as their representatives by the people of the locality’ (DPLG2006b: 5). The national guidelines state clearly that although a LEDA isestablished as a municipal entity, municipalities remain politically accountablefor LED and cannot delegate political responsibility to another institution.Indeed, municipalities remain responsible for public funds even if projects aredelegated to project institutions. Further, municipalities must also be aware ofthe context and content of the government LED policy (DPLG 2006a: 7). It isthis balance between municipal responsibility for LED and the implementationfunction of agencies which is key to the effective management of LED inmunicipalities as a whole.

The DPLG draft guidelines identify a number of specific local and regional activitiesfor LEDAs (DPLG 2006b). These include inter alia, championing activities relating toLED strategy implementation, fund raising for specific projects, coordinating, monitor-ing and quality control of services available in the area and promoting regional activitiesthrough collective marketing (DPLG 2006b). The DPLG Guidelines also note thepresence of different agency forms. These include: (a) municipal type agency such asa Pty ltd company, service utility, multi-jurisdictional service utility and (b) a non-municipal type agency such as a Section 21 Company. Depending on local circum-stances municipalities are able to select the most appropriate form to suite their specificcircumstances (DPLG 2006b: 6).

Importantly, while national draft guidelines have been established no explicit nationalgovernment support programme were evolved for development agencies in SouthAfrica from any of the key ministries impacting directly on the governance of theLED in South Africa, including the Department for Cooperative Governance andTraditional Affairs, the Department of Trade and Industry and the Department forEconomic Development. Instead, programmes and community of practice initiativeshave emerged from the bottom–up and mainly through the efforts of institutions such asthe South African Local Government Association, the South African LED network andthe Industrial Development Corporation (IDC). This situation is in spite of the consid-erable contributions which have been made bymany of the existing agencies to the localgovernance and socio-economic landscape at national level. They have, however, beenseen as successful conduits for national programme implementation such as the NationalTreasury’s Neighbourhood Development Fund and Municipal Infrastructure Grant(MIG) funding. As a whole, within this overarching legislative context the SouthAfrican experience of LEDAs has been diverse. On the one hand LEDAs are seen togive effect to a vision of municipal LED by focusing on strategic operating thrusts thatwould enhance LED. On the other hand the biggest challenge is to break away from

The Role of LEDAs in the South African LED Landscape

inter-connectedness to the governance of localities without having to compromiseeconomic efficiencies and general service delivery.

Different Forms of LEDA in South Africa

Analysis of the South Africa’s experience highlights two major influences andapproaches on the practice and implementation of LEDAs. Both evolved in thelate 1990s and were linked to local government in some way despite beingdifferently anchored in the local development space. The first approach had astrong international donor agency influence and was associated with a growthof agencies in other parts of the world. This first approach was driven througha collaborative United Nations Development Programme (UNDP)/United Na-tions Office for Project Services (UNOPS)/Italian Aid Cooperation model withstrong links to the DTI and its enterprise development priorities. The secondapproach was linked to the IDC and can be termed the IDC Agency model.Arguably, while the IDC Agency model was also influenced to some degree bydevelopments taking place in other parts of the world it was more nuanced thanits predecessor and plays a more bridging, facilitative role in the South Africanlocal governance landscape which was struggling to balance the demands ofservice delivery backlogs with mandatory economic development facilitation.The evolution and workings of these two approaches or models now will beelaborated.

Donor Agency Approach: UNDP/UNOPS/Italian Development Cooperationand the DTI phase

The first LEDA in South Africa can be dated back to the late 1990s when,through a partnership between the Department of Trade and Industry’s Enter-prise Development Unit, UNDP, UNOPS and the Italian Government’s Direc-torate for Development Cooperation, a national commitment was made toestablish “four local economic development agencies in four South Africanprovinces between 1999 and 2003” (Pretorius and Blaauw 2008: 155). TheseLEDAs were seen as “participatory structures established at local level toencourage sustainable economic growth, income generation, employment anddecent jobs” with a specific emphasis on “small entrepreneurs and the poorwith entrepreneurial potential” (Pretorius and Blaauw 2008: 156). An agreementsigned in 1998 between the South African and Italian governments led to theappointment of UNOPS as the implementing agent for the Small Enterprise andHuman Development Programme (SEHD) which was similar to the ILS LEDAmodel with strong emphasis on the promotion of small, medium and microenterprises in a framework of sustainable local economic development (Pretori-us and Blaauw 2008:165). During this period strong links with the DTI’snational strategy of small and medium-sized enterprises were made and thiswas regarded as highly commendable for not only did it encompass the DTI’sperspective of LED, but also potentially embedded the LEDA concept in anational policy context (Pretorius and Blaauw 2008: 165). A phased approach

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was used with regard to the implementation of the four agencies in order toensure that institutional preconditions were in place for more sustainable andlong term impacts in the selected pilot LEDAs in four identified provinces. Thefour pilot LEDAs were LOREDA—Lower Orange Economic DevelopmentActivator (also known as Siyeda, in Upington); NKEDU—Nkomazi EconomicDevelopment Unit in Nkomzi Local Municipality in Mpumalanga; ORTEDA—OR Tambo Economic Development Agency in Eastern Cape; and, VHEDA—Vhembe Economic Development Agency in Vhembe District, Limpopo.

The initial phase of LEDAs between 1999 and 2003 focused on ‘getting theinstitutions right’ with significant resources ploughed into capacity building andtraining as well as systems development and general programme support. Thiswas followed by a more project-targeted approach which emphasised a moreinvestor-friendly drive in which projects were used as catalysts for localdevelopment. In common with many international examples, this phase ofSouth African based LEDAs had loan financing for emerging non-bank worthyentrepreneurs as part of its service offering and presented a number of opera-tional and management challenges. The agencies focused on project identifica-tion and sought to secure funding for strategic LED related projects in additionto project funding which was promised to them by the SEHD/Italian Aidpartner institutions. As Pretorius and Blaauw (2008) point out, the delays inthe receipt of donor funding for strategic projects eventually resulted in seriousdelays in implementation with negative impacts on the sustainability model forthe further development and roll out of agencies. In turn, this resulted in ageneral rethink of the role of these agencies in the local development space andthe sustainability model beyond funding partner involvement.

The establishment of the DTI’s Small Enterprise Development Agency (SEDA) in2004 brought with it a good opportunity for a rethink of the model around these firstphase LEDAs. A favourable view was for these agencies to serve as platforms forsmall enterprise promotion which in turn meant the integration of these LEDAs intothe operational system of the DTI. The legislative context of these LEDAs was alsoimpacted by the introduction of the Municipal Finance Management Act (2004). Thisresulted in significant constraints to the funding and operating approaches of theseagencies and a more stringent financial governance system which did not favour thepromotion of formal partnerships such as public–private partnerships with municipalentities. Neither did it encourage the management of a loan financing scheme in theinterest of emerging and non-bankable entrepreneurs, outside of the new operatingand governance systems which were recommended through this legislation.

Pretorius and Blaauw (2008: 181) rightly emphasise that the first 6 years ofLEDAs existence in South Africa were characterised by “unfulfilled potential andexpectations”. Furthermore, the road ahead was filled with serious challenges ifLEDAs were to emulate the success of their international counterparts. Indeed, thischallenge was made even more difficult by the legislative imperatives which were notnecessarily conducive to innovative funding mechanisms such as the use of equityfinancing or charging for services for municipal entities. It was during thisreorganising period of first phase LEDAs into the DTI’s SEDA programme that asecond form of development agency initiative was institutionalised within the Indus-trial Development Corporation through the establishment of the Agency

The Role of LEDAs in the South African LED Landscape

Development Support Unit. What distinguished this second approach from the firstwave of South African LEDAs was the firm roots in municipal LED processes andstrong links to local government, and with the Department of Cooperative Gover-nance in particular.

The IDC ADS Approach to LEDAs

The second IDC model of development agencies emerged out of a need toaddress two specific challenges. The first pertained to an internal need toaddress a practical institutional challenge within this public sector institutionwhile the second was influenced by the institutional environment within whichthe IDC operated.

Regarding the first challenge, as a public institution accountable to parlia-ment, the IDC had a specific investment mandate that included the facilitationof large financial transactions predominantly with private sector companies inmajor cities such as Johannesburg, Cape Town or Durban. Outside of thesecities, there was limited IDC activity in other parts of the country. Faced withthis challenge, the organisation began to explore ways of spreading its institu-tional reach to areas that were not traditionally part of IDC’s traditional targetmarket (Bartlett 2012). Accordingly, it was at this time (2002) that the IDC’smodel for development agencies began to emerge as a possible response to theimperative of the IDC to expand geographically the reach of the institution’sinstruments to a new type of client base (Bartlett 2012).

The second challenge concerned the enabling environment within which busi-nesses could operate. Since the IDC funded the private sector one of the firstchallenges which began to emerge was how to lend to entrepreneurs located outsidethe core regions in ‘more challenged areas’ where market conditions were notnecessarily optimal for business growth or expansion (Bartlett 2012). The idea wastherefore to start early in the process and support the establishment of an appropriatebusiness enabling environment which was often a precondition for successful growthand expansion. Elsewhere, during the same period of 2000–03, South Africawitnessed the onset of a transformed local government system through the introduc-tion of legislative reforms such as the MSA (2002) and MFMA (2003). This meantsignificant shifts towards strengthening the system of local governance and it was thisinstitutional context which presented the most appropriate structure for entry intothese new geographical spaces for IDC operations.

As funding would be grant-based, the initial approach was to work throughthe newly established integrated development planning system (IDP). Bylinking to the developmental objective of the IDP, municipalities thereforebecame a platform to test the agency approach (Bartlett 2012). Accordingly,during 2002, the IDC developed a pilot programme through their AgencyDevelopment and Support unit (ADS) to launch the agency concept. This pilotprogramme stretched to peripheral areas of South Africa and included Port StJohn’s in Eastern Cape and areas of the Northern Cape. The main objectives ofthe new agencies were to address issues concerning the enabling environment.

In the design of the South African model of agency, implementation lessons weredrawn from the extensive approaches already in existence in countries such as

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Australia, UK, USA and France. These approaches were reviewed and then adaptedto suit the South African context of local governance. IDC supported developmentagencies therefore had the following ‘common objectives’:

& To promote and develop economic potential on a local and/or regional basis bybuilding on the unique competitive strengths of each region’s economy andassets;

& To leverage public and private resources for development opportunities;& To foster the innovative thinking and entrepreneurial activities that support and

drive economic growth;& To manage the spatial configuration of the area in a socially efficient manner,

through the use of public land and targeted private projects in particular; and& To strengthen the respective areas and the real or perceived location environment

and business climate so it can compete for capital investment and market share(Lawrie Shaw Consulting 2012: 9).

Once resources and pilot sites were secured for the establishment of developmentagencies the core challenge which emerged was how to find dedicated capacity forLED. Since the period of 2000 and onwards saw a strong emphasis by localgovernment on addressing service delivery challenges and infrastructure backlogs,limited attention was given to the imperatives of economic development (Bartlett2012). Not only was it a necessary revenue source that would cross-subsidise servicedelivery backlog spending, but it was also a crucial cog in the wheel of much neededjob creation. For the IDC, it was therefore logical to promote a parallel emphasis oneconomic development at the same time as addressing infrastructure and servicebacklogs. Nevertheless, the promotion of the economic governance role of localgovernment at a time when policy directives were focused more on a hard-coreservice delivery focus made it difficult to reinforce the importance of LED (Bartlett2012). Furthermore, while most municipalities were well geared for the technicaldimensions of service provision and infrastructure development they did not neces-sarily have the means or capacity to address issues relating to the constitutionalimperative for pursuing LED. This challenge required a specialised skill which wasnot necessarily available to municipalities. Accordingly, the IDC’s agency model wastherefore conceptualised to address this specific skill and implementation deficit.

The IDC model of development agencies was firmly rooted within the SouthAfrican system of local governance. It was structured to be wholly owned bymunicipalities and was conceptualised as the implementing arm of the municipality.To assist selected municipalities with the establishment of such an agency a specificprocess was designed which involved scoping existing contexts, identifying localpotential as well as either leveraging the assets of municipalities or resuscitatingdormant assets in the interest of economic development. The IDC designed a matrixwhich was made available to municipalities in order to assist with identifying keycharacteristics of the area, including whether it was in decline or where there was adegree of economic potential which could be unlocked through an agency-basedstrategy.

By 2011, 34 pilot LEDAs were identified with the aim of addressing elements ofeconomic efficiencies in different operating contexts. The lessons from these pilots

The Role of LEDAs in the South African LED Landscape

were to be documented and made available for other later established agencies. Everyagency established was to be “a site of new learning” (Bartlett 2012). In the NorthernCape, for example, agencies were meant to demonstrate learning of a multi-level,multi-jurisdictional nature while others were more closely linked with the privatesector. The IDC ADS unit used a multi-dimensional and multi-jurisdiction approachin the selection of sites, with an emphasis on both local and district level. In thisregard what was most needed was the facilitation of an agreement between two ormore municipalities operating along a specific functional economic area. Goodexamples of these agreements were to be provided by the examples and experienceof the Aspire Development Agency in Eastern Cape (Aspire 2011a, 2011b; McKibbinet al. 2012) and the Ilembe Development Agency in KwaZulu-Natal (South AfricanLED Network 2012)

One of the key challenges faced by the IDC in its establishment phase ofagencies was the challenge of identifying appropriate capacity to drive and steerthis meso-level institution. According to the IDC, these agencies needed “aspecial kind of person to head it” with a diverse range of skills includingproject management expertise, political astuteness, legislative appreciation, anunderstanding of town and regional planning, community development facilita-tion competencies and an understanding of economic development (Bartlett2012). As this kind of expertise was not readily found in the civil service, itwas therefore necessary to recruit leaders for the IDC Agencies from outside ofthe local government environment. Another essential challenge was to linkthese agencies to national policy as the IDC local development agencies wereconceptualised as sites where government was directing its energy locally. Itwas critical that the established LEDAs align with the directions of existingstrategies of such key government programmes at the time namely, the Inte-grated Sustainable Rural Development Programme and the Urban RenewalProgramme as well as with the Provincial Growth and Development Strategies.Linkages to these programmes were made in the type of pilots establishedthrough the IDC model. Nevertheless, whilst they endeavoured to ensure inte-gration and relevance with regard to policy content, the pilot LEDAs werelimited often due to capacity challenges at the local level.

The funding model for LEDAs was tailor made for the South Africancontext and differed substantially from the earlier UNOPS/Italian Aid modelin that processes and funding were directly linked to municipalities as the keyshareholder of these agencies. Although there was a municipal connection inthe UNOPS/ Italian Aid model the funding processes were not necessarilydependent on this municipal link since it was associated with a micro-enterprise financing model which had strong links to government through theDTI but not necessarily firmly rooted within local government structures.Regarding sustainability, the IDC agencies were originally conceptualised toinclude a private sector equity purchase of businesses supported by develop-ment agencies. This requirement was similar to the international experience ofagencies elsewhere in the world (see, e.g. Beer et al. 2003; Canzanelli 2009,2011a, b; Clark et al. 2010; Emini and Gorun 2010). The introduction of theMFMA in South Africa in 2003 conflicted with this objective as it preventedentities from acquiring equity into local business ventures. The only possibility

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for this to occur was if the host municipality appointed the development agency asproject managers. Since the IDC model was directly linked to local municipalities,innovative and entrepreneurial operating strategies for agency sustainability had to beanchored to municipal government structures and in many instances this often proved alimiting factor.

Contemporary Issues of LEDAs in South Africa

The IDC pioneered the establishment of municipal-owned development agencies toact as catalyst to implement local economic development in targeted local and districtmunicipalities across South Africa (Lawrie Shaw Consulting 2012: 9). Arguably,these agencies have played a pivotal role in leveraging further development andfinance support. The initial target set by the IDC for testing the development agencyconcept in South Africa was 34, a target which was met by 2012. By 2012, an audit ofLEDAs reveals that in total, there were 27 functioning LEDAs as well as eightLEDAs which had been either disestablished or no longer operational.

Figure 1 demonstrates that LEDAs were established throughout the South Africanspatial system and across all nine provinces. It is observed that in line with the IDCmandate to provide support for economic development outside of the three major

Fig. 1 The location of LEDAs in South Africa, 2012 (Source: unpublished data from LED Network andIDC)

The Role of LEDAs in the South African LED Landscape

metropolitan centres in the country the largest share of LEDAs are situated in thecountry’s peripheral regions with a strong focus on energising development in smalltown localities. The disestablishment and lack of operation of certain LEDAs, such asKouga Development Agency, Metsweding Economic Development Agency or theMbombela Development Agency indicates the uneven experience of LEDAs initiatedby the IDC.

The flagship LEDA and most successful example of LEDAs in South Africais that of Aspire, the Amathole District Municipality’s Economic DevelopmentAgency in the Eastern Cape. This agency was constituted as a regional devel-opment agency in 2005 and incorporated as a Pty Ltd Company, which waswholly owned by Amathole District. The district has a population of more than1.7 million people living mainly in rural and peri-urban locations and compriseseight local municipalities. It boasts a regional economy which had strong linksto its high prevalence of small nodal towns (Aspire 2011a). From its inception,Aspire operated relatively autonomously and aimed at becoming a “pioneer inthe stimulation of spatial economic development” and positioned itself as a‘trusted advisor, stimulator and partner in the regional economic environment’(Aspire 2011b). It placed strong emphasis on creating its own distinctive ‘brandof LED’. The agency distinguished its LED operations from those roles andfunctions of district municipalities noting that: “Whereas the District Munici-pality can strategize and make broad plans in respect of economic development,an agency must deliver: it is the ‘operational arm’” (Aspire 2011b: 22).Through this process, Aspire was able to identify itself with its distinctivespatial corridor approach which sought to unlock economic potential andstrategic linkages across four existing transport corridors which traversed theDistrict (Aspire 2011b). McKibbin et al. (2012: 390) point out that while it is“relatively early days for the agency, their innovative decision and drive forregional economic development through small town interventions, anunderplayed element in the space economy, may shed some light on a possiblesustainable way forward for regional development” in South Africa. Anotherdistinguishing feature highlighted has been its ability to ‘make things happen’(Aspire 2011a: 6). This is attributed to its strong quality leadership andcompetent technical team and ability to mobilise appropriate resources for localprojects.

The Aspire model exhibits a strong people-development approach which findsexpression in the identification of catalytic projects and the matching of these withsocial entrepreneurs who, together with local stakeholders, are able to unlock localpotential and create new regional economic opportunities. The emphasis is on smalltown development, which is a pillar of this regional approach, and considerable efforthas gone into identifying and supporting strategic infrastructure in order to improvelocal conditions in towns and create essential economic linkages which are requiredto improve local conditions in those small towns. The Aspire experience was stronglyaligned with the IDC’s vision and role for development agencies.

The role of the IDC was to see what strategies could be employed by local peopleto grow the economies of local areas across South Africa (Bartlett 2012). In addition,it looked at providing documentation of this experience and information on cases,examples and learning. Part of this role meant the introduction of financial and

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technical support to agencies. While significant progress has been made the IDCacknowledges that not all objectives have been fully met (Bartlett 2012). Some of theoutstanding challenges include, limited private sector involvement, difficultiespertaining to existing legislation and, the establishment of sustainability strategiesfor the LEDAs since the original support model was premised on a limited timeperiod for support of up to 5 years.

The DTI/IDC legislative review report noted a number of salient points regardingthe role of LEDAs in South Africa (MXA 2009). The report argued that there anumber of enabling factors exist which can impact upon the success of LEDAs as anLED instrument. These include, inter alia, enabling LEDAs to generate their ownincome; the ‘offer of incentives to business to locate in an area’; establishing firmrelations with ‘large business’ not just SMMEs; the need for a more regional and/ orsub-national perspective for LEDAs; insulation of LEDAs from municipal politics;the importance of promotion of learning, knowledge management and sharing; and,the ownership of local leaders’ (MXA 2009: 46). Notwithstanding these key roles, anumber of challenges with agencies were identified. Among the most prominent ofthe contemporary challenges are:

& The non-prescriptive model of ADS model may have contributed to a conflict ofinterest where the development agencies mandate is not always in line with theobjectives of the ADS programme.

& The difficulty with generating sustainable income outside of the highly controlledlegislative framework for local government which includes the Municipal Sys-tems Act 2000 as well as the Municipal Finance Management Act (2003).

& Appropriate capacity and skills to facilitate LED processes and to manage and runa development agency. This extends beyond the management functions to includeboard members of these agencies. Specific technical gaps include business know-how, funding and resource challenges.

& Role clarification especially in relation to the municipal LED Unit also needsaddressing. Included in this is discernment around what is regarded as an appro-priate project for an agency as opposed to one that is allocated to the municipalLED function. Slow turnaround time for decision making, political interferenceand instability as well the achievement of a common understanding of an inte-grated and comprehensive territorial development approach among various stake-holders (MXA 2009: 82).

& Funding term of IDC is usually 3–5 years after which agencies should be self-sustaining. This makes long term sustainable planning of LEDAs difficult andeven more challenging is the ability of agencies to “shape their focus based on thechanging regional characteristics in which they are located” (MXA 2009: 80).

& Leadership has also emerged as a key aspect of LEDA success. MXA (2009: 83)notes that “successful LEDAs require committed leadership, an entrepreneurialapproach, buy-in from community and stakeholders, funding for establishmentand sustainability, clarification of goals, vision and roles of the agency and others,such as the LED unit in the municipality, and political support”.

Several alternative perspectives have been offered regarding additional roles thatthese agencies could play outside of the traditional LED perspective in South Africa.Malefane (2011: 979) writes that “the comparative advantage that LEDAs have over

The Role of LEDAs in the South African LED Landscape

national and provincial departments of government derived from it being municipalentities” and that this very characteristic contributed to its locational advantage.Furthermore it is pointed out that the key characteristics which LEDAs possessinclude strong leadership, effective mobilisation and allocation of resources, flexibil-ity as well as local knowledge (Malefane 2011). Their proximity to local governmentmakes them well-placed to deal with community development on the one hand aswell as public–private partnerships around local infrastructure development or serviceprovision, on the other and this role could be extended to an intergovernmentalfunction beyond a traditional LED function. This intergovernmental role may onlybe effective, however, if there is full acknowledgement of the role and contribution ofLEDAs to the local governance space. While some recognition does exist, the limitedresources and national emphasis on the role of agencies outside of the IDC portfoliodoes not make a strong case for full integration of LEDAs into the system of localgovernance. Significant leadership is therefore needed in order to make this a reality.Finally, the MXA (2009: 80) report notes: “It is clear that LEDAs that do not succeedis an indictment for any future LED interventions that may be planned, as stake-holders view such institutions as just another layer in a hierarchy of institutions thatare not delivering on LED”. For this reason, it was urged efforts should be made toexplore the different roles of LEDA in the development of a territory as well as tosupport the promotion of good practice which would elevate the practical contribu-tion of LEDAs to local development.

The most recent impact assessment of development agency interventions, whichwas produced in 2012 (conducted on behalf of the IDC) noted that the strong bridgingrole between public, private and local-based interventions was a central part of theIDC approach (Lawrie Shaw Consulting 2012). On an institutional support level,agencies have all been supported with ‘technical and financial assistance’ andconsiderable efforts have also gone into ensuring shared learning amongst agencypractitioners. A commitment to learning was evident through the recently launchedcommunity of practice (CoP) which was established in April 2012 (IDC 2012). ThisCoP serves as a network platform which will function as a reservoir of information tobe shared by development agencies but also to assist agencies with inter-agencycollaborations and sharing of information of common interest thereby enablingpractitioners to address key capacity and operational challenges across the sector(IDC 2012). It is observed that whilst there has been significant praise for therelevance and success of IDC supported agencies, the 2012 impact assessment didnote that ‘the jury was still out’ on the overall effectiveness of agencies outside ofADS institutional and operational support. Further research was thereforerecommended in order to evaluate this critical issue (Lawrie Shaw Consulting2012: 47).

Conclusion

This article discloses South Africa’s experience of LEDAs has been uneven. Never-theless, if situated within the international context of LEDA operations, it is evidentthat the South African experience is not unique (see Beer et al. 2003; Clark et al.2010; Emini and Gorun 2010; Canzanelli 2011a, 2011b). Issues relating to how

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LEDAs are resourced, the scale and context within which LEDAs operate as well assecuring implementation resources remain a considerable challenge for LEDAs inSouth Africa as is the case in other parts of the world. It is evident that LEDAs canhave a pivotal role to play in South Africa in managing, directing and coordinatingeconomic development activities in local spaces. The extent and impact of thiscontribution is, however, influenced by both the institutional readiness of both theagency and the parent municipality to manage development outcomes, but also theextent of economic potential which exist in local areas. Furthermore, this is alsolinked to the ability of agencies to bring on board key private and public sectorpartnerships in order to unlock local potential. Capacity and resource challenges, aswell as the ability of agencies to see through tasks in spite of inherent political andeconomic tensions which exist in local spaces, remain an additional challengingdimension to be considered by agency officials.

In the final analysis, while LEDAs are part of South Africa’s LED landscape it isargued they have not yet emerged as fully embedded implementation instruments inthe system of local governance. It is important to acknowledge that LED is a processand takes time, and its success is dependent on a host of factors including a goodstrategy, leadership, sufficient resources, an effective team and excellent partnerships.With effective direction, including political and economic leadership and purpose inplace, agencies might address some of the many operational challenges. Althoughcertain good practice examples of South African development agencies are beginningto emerge, most notably in the case of Aspire (McKibbin et al. 2012), it is clear thatan examination of the international experience of LEDAs both in developed anddeveloping countries can also provide useful insight into enhancing the operational,institutional and socio-political context for LEDA operations in South Africa.

Acknowledgments Thanks to assistance offered by Stuart Bartlett of the Industrial Development Corpora-tion in this research and to Wendy Job, University of Johannesburg, for preparing the accompanying map.

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The Role of LEDAs in the South African LED Landscape