Think Piece for Discussion

22 February 2012

What Future Cape is not…

• An economic strategy• Or even an economic

agenda towards a strategy

• Instead, it is an informed provocation about how the world is changing with an eye on 2040.

• It acknowledges that economic intelligence about sectors, clusters, value chains and investment patterns and potential is vital.

• But, doing all this well will still not enable us to achieve resillient and inclusive growth…

Storyline

1. Rising above the now: The point about understanding the future is to equip us to act more effectively in the present

2. The changing world and our futures

3. Flashing dashboard: Pressing development challenges

4. Homebru Conceptual Framework

5. Proposed Priority Interventions

6. Having the conversation towards common purpose…

TOPVIEW: RISING ABOVE THE PRESENT

If we don’t escape the present into the future, we cannot solve the problems of today; if we don’t act now, we cannot achieve the future we need in order to flourish…

The Changing World

Mega shifts• Irrevocable geo-economic shifts

by 2030• Socio-Digital media shift

(cellphone and internet impact on consumption)

• Permanently resource constrained world: implications for prices and patterns of inclusion and exclusion

• An era of systematic risk and uncertainty due to climate change impacts

Geo-economic shifts

v

Relative shares of global economic output, 1500-2000

Economic Growth Trends for Major Economic Powers (2000-2100)

India, China & Japan had the largest urban populations in the world till the early 19th century

The US and EU continue as major powers till the 2030s, after which China will typically lead for up to 50 years, while India comes up from behind

IFs Base Case: National/Regional GDP at PPP (at 1995 constant USD)

-

20,000

40,000

60,000

80,000

100,000

120,000

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100Years

GD

P (Bill

ion

$)

India China USA EU25 Japan Russia Brazil

China-EU China-US India-EU India-US India-China

In 2009, China & India accounted for less that 2% of Western Cape trade!

Socio-digital shift

51,000% increase since 1995

Global material extraction in billion tons, 1900-2005

“Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months. So what’s the meaning of this surge? Is it speculation run amok? Is it the result of excessive money creation, a harbinger of runaway inflation just around the corner? No and no. What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices. So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding.” - Paul Krugman, International Herald Tribune, 28 December 2010.

Climate change impacts

Source: Left: IPCC Synthesis Report, 2001; Right: Smith et al 2009 PNAS

Economic implications of adaptation

DEPLOYMENTDEPLOYMENTINSTALLATION

Financial crisisFinancial crisis

“Creative destruction”Learning the newunlearning the oldA great market experiment Led byfinancialcapitalEnding in a stock marketcrash

INSTALLATION DEPLOYMENTDEPLOYMENTDEPLOYMENTDEPLOYMENT

““Creative Creative construction”construction”

Led byLed byproduction capitalproduction capital

Applying the paradigmApplying the paradigmto innovateto innovate

across all sectorsacross all sectorsand to spreadand to spread

the social benefitsthe social benefitsmore widelymore widely

Until maturityUntil maturityand exhaustionand exhaustion

???2O - 30 years2O - 30 years2O - 30 years2O - 30 years

Majortechnology

bubble

big-bangbig-bangNextNext

big-bangbig-bang

Time

Deg

ree

of d

iffus

ion

of

the

new

tech

nolo

gica

l pot

entia

l

The first half sets up the infrastructure and lets the markets pick the winnersthe second half reaps the full economic and social potential

EACH TECHNOLOGICAL REVOLUTION PROPAGATES IN TWO DIFFERENT PERIODSEACH TECHNOLOGICAL REVOLUTION PROPAGATES IN TWO DIFFERENT PERIODS

TurningTurningPointPoint

Unc

erta

inty

, ins

tituti

onal

reco

mpo

sitio

n a

nd r

ole

Unc

erta

inty

, ins

tituti

onal

reco

mpo

sitio

n a

nd r

ole

shift

shift

State intervention

GREAT SURGE

TechnologicalRevolution

CORE COUNTRY

INSTALLATION DEPLOYMENT

IRRUPTION

FRENZY SYNERGY MATURITY

The IndustrialRevolutionBritain

1771 1793-97Canal mania

(Britain)Great British leap

1st

Age of Steam & RailwaysBritain (spreading to EU & US)

1829 1848-50Railway mania

(Britain)The Victorian boom (Britain)

2nd

Steel, Electricity & heavy engineeringUS & Germany overtake Britain

1875 1893-95

Transcontinental investments in

railways, ships & ports

Belle Epoque (Europe)“Progessive era” (USA)3rd

Oil, automobile & mass productionUS (spreading to EU)

19081929-33

(EU)1929-43

(US)

Autos, electricity, radio, aviation and real estate

(USA)

Post-war golden age (USA-Europe)4th

Information & telecommunicationsUS (Spreading to EU & Asia)

1971 2001-022008-09

Telecoms & internet mania & financial

instruments(Global)

GREEN NEW DEAL???5th

Big-bang crash Institutional recuperation

Turning point

SUSTAINABLE SYSTEM?

(Adapted from C. PEREZ 2002)

GREAT SURGE

TechnologicalRevolution

CORE COUNTRY

INSTALLATION DEPLOYMENT

IRRUPTION

FRENZY SYNERGY MATURITY

The IndustrialRevolutionBritain

1771 1793-97Canal mania

(Britain)Great British leap

1st

Age of Steam & RailwaysBritain (spreading to EU & US)

1829 1848-50Railway mania

(Britain)The Victorian boom (Britain)

2nd

Steel, Electricity & heavy engineeringUS & Germany overtake Britain

1875 1893-95

Transcontinental investments in

railways, ships & ports

Belle Epoque (Europe)“Progessive era” (USA)3rd

Oil, automobile & mass productionUS (spreading to EU)

19081929-33

(EU)1929-43

(US)

Autos, electricity, radio, aviation and real estate

(USA)

Post-war golden age (USA-Europe)4th

Information & telecommunicationsUS (Spreading to EU & Asia)

1971 2001-022008-09

Telecoms & internet mania & financial

instruments(Global)

BUSINESS AS USUAL + GREENWASH5th

crash

Turning point

SUSTAINABILITY AGE 2005 2025

Renewables, decoupling, demateralisation, sustainable living (Global)

SUSTAINABLE LIVING & GLOBAL EQUITY6th

AGRI

CULT

URE

SUST

AIN

ABLE

SY

STEM

HOW READY IS THE WESTERN CAPE TO JOIN THE ECO-INDUSTRIAL AGE?

Can the Western Cape Engage & Address its Unique Development Challenges?

The Changing World

Mega shifts• Geo-economic shifts• Digital media socio-cultural

shift (cellphone and internet impact on consumption)

• Permanently resource constrained world: implications for prices and patterns of inclusion and exclusion

• An era of systematic risk and uncertainty due to climate change

Meta Implications• Rise of regions and city-blocs

as the nodal point of the global economy

• Transition to an eco-industrial era (adaptive technologies to achieve eco-efficiency)

• Distributed settlement and production logics (“local is lekker; slow in nice”)

• Place-based innovation systems

FLASHING DASHBOARD

Flashing Dashboard

1. Structural unemployment, with no sign of abatement (skills mismatch)

2. Catastrophic impact of carbon pricing on the exports of the Western Cape

3. Endemic social violence and crime that undermines social cohesion, economic productivity and visitor economy

4. Low quality, dangerous and disconnected neighbourhoods where the majority of citizens are trapped in poverty (food insecurity)

5. Infrastructure crunch and cost

Unemployment

Overview of the Western Cape labour market, 2011

“Around half a million individuals in the Western Cape were unemployed in 2011Q1, up from just under 400 000 in 2008, representing growth of 9.1 per cent per annum over the three-year period. Provincial employment appears to have been stagnant over the period at around 1.8 million.”

Impact of carbon tax

Any carbon pricing will affect South Africa and WC disproportionately. A ZAR100 carbon tax (either in SA or at EU border) would add R0.22 to the cost of a kilogram of fruit from Theewaterkloof on average (more for grapes, less for citrus). The same tax adds ZAR 0.06 – ZAR 0.09 to a kilogram of fruit grown in Chile (a major competitor).

Edible fruits and nuts is the Province’s biggest export earner (ZAR 10.6 billion in 2009) which is 20% of all exports. But will lose competitiveness in a carbon constrained world (as will most sectors). Second biggest exporter is mineral fuels, oils and distillation (I assume from our refineries). 3rd biggest export is “spirits, beverages, vinegar” .....which is agricultural.

• Average per capita CO2 emissions nationally have actually been stable (come down from 9.2) around this very high level over the past 15 years. A function of modest economic growth, some population growth and some efficiency gains. Inequality in emissions is a key WCape story.

Carbon Productivity Per capita Production Carbon Footprint

[USD GDP / tonne CO2e] [tonnes CO2e / capita]

City of Cape Town 670 7.8

Western Cape 770 6.1

South Africa 400 8.9

Required by 2050 (McKinsey) for stablisation at 450ppm

7,300 1.0??

Endemic violence

Symptomatic of a wide-ranging number of social pathologies that cluster around substance abuse, sexual violence, dysfunctional parenting, splintered households (absent fathers), etc…

Symptomatic of a wide-ranging number of social pathologies that cluster around substance abuse, sexual violence, dysfunctional parenting, splintered households (absent fathers), etc…

Unliveable neighbourhoods

“High-income households live in low densities while low-income households live in high densities.” (CCT 2010)

Spatial dynamics of isolation and exclusion

Spatial traps of educational, health, economic & social dysfunction, reinforced by mobility barriers. Encrusted by cultural norms.

Spatial traps of educational, health, economic & social dysfunction, reinforced by mobility barriers. Encrusted by cultural norms.

Trapped in an unviable fiscal model

Trapped in an unviable fiscal model: maintaining standards in wealthy areas

Recap: Flashing Dashboard

1. Structural unemployment, with no sign of abatement (skills mismatch)

2. Catastrophic impact of carbon pricing on the exports of the Western Cape

3. Endemic social violence and crime that undermines social cohesion, economic productivity and visitor economy

4. Low quality, dangerous and disconnected neighbourhoods where the majority of citizens are trapped in poverty (food insecurity)

5. Infrastructure crunch and cost

CONCEPTUAL FRAMES

The development challenge…

GDP: 7% for 5m

jobs

CO2: 42% deviation

below BAU by

2025

HDI: 0.597

0.80

Resilient growth Inclusive growth

Network infrastructure life-spans

Network infrastructure priorities

• Water & waste: enhance re-use and recycle with a low-skill employment focus built into the service delivery model of all municipalities

• Transport-oriented settlement planning and land-use regulation, based on maximising new revenue streams

• New building standards for both top-structures and subterranean infrastructures, phased in gradually to achieve carbon per capita targets

• Reinforce a green economy regional innovation system to facilitate a cost-effective transition to the new resource standards

Spatial & land-use operating system

(equitable & inclusive)

Spatial & land-use operating system

(equitable & inclusive)

Economic operating system

(Inclusion & durability)

Economic operating system

(Inclusion & durability)

Social-cultural operating system

(liveable communities)

Social-cultural operating system

(liveable communities)

Network infrastructure

operating systems(resilient

settlements)

Network infrastructure

operating systems(resilient

settlements)

Priority interventions

1. Transition from Dirty to Clean Economy through a focus on sustainable infrastructure as a catalyst for the Cape Green Economy

2. Guarantee excellent public transport

3. Energy security

4. Liveable human settlements

5. Institutionalised growth management (inter-governmental, multi-sectoral and inter-sectoral alignment)

6. Social transformation through building liveable communities

Sustainable infrastructure

Generally speaking sustainable urban infrastructure includes:•Public transport networks;•Distributed renewable generation and integrated energy demand management initiatives and programs;•High efficiency buildings and other development constraints such as only permitting the construction of green buildings and sustainable habitats with energy-efficient landscaping;•Connected green spaces and wildlife corridors;•Low impact development practices to protect water resources.

Energy security

• Energy efficiency: The most effective renewable energy initiatives in the Western Cape should be implemented in tandem with energy efficiency measures that reduce the quantum of energy required by the province.

• Public procurement: Public procurement of clean energy; the retrofitting of government buildings; the charging of differential levies for peak and off-peak electricity and the building of more energy efficient low cost housing represent important public initiatives aimed at supporting the emergence of a local, renewable energy sector.

• Intra-governmental engagement: An engagement with different spheres of government aimed at securing power purchase agreements.

Housing access

• “The housing or shelter challenge must be rethought in order to address the imperative of affordable, well-located and healthy living conditions. Practically, this means that building more of the current RDP housing matchboxes must stop. Instead, public housing must be broadened and reprioritised to secure a rebalanced allocation for upgrading, low-income rental stock, gap housing (rental stock for lower middle-class) and private-sector driven integrative efforts…”

Rebuilding place & community: Economic Inclusion

Rebuilding place & community: Integrated community development via Community Works Programmes

The Future regional competitiveness will hinge on our capacity to innovate in order to simultaneously address spatial and social inequalities in an environmentally resilient way…

Key questions

• Does the story line make sense in the context of the Cape?• What would the implications be for your sector if we focus all

our attention on learning how to become an eco-efficient province/region by 2040?

• Is there a business model/social-organisation model in becoming an eco-efficient province?

• Is there scope to foster a shared social purpose in deepening and systematically addressing the intervention agenda?

• How best can we embed this agenda in the minds and plans of all sectors and institutions of society?

Acknowledgements

• Cape Higher Education Consortium (CHEC)

• African Centre for Cities at UCT• Sustainability Institute linked to

University of Stellenbosch• Commissioned by the Western

Cape Provincial Government• Steered by the Economic

Development Partnership