The Theory of Blue IQ

1
The Theory of Blue IQ
2
Inherited Economy

• 1994 Cabinet calls for status report on Gauteng
  economy and proposal for economic strategy
• Status findings
• GGP growing at between 1 and 2
• Unemployment increasing labour absorption
  decreasing
• GGP composition skewed towards primary production
  and low value added manufacture
• Export basket low value added and uncompetitive
• Standard of living decreased every year since
  1981
• Inherited Economic Trajectory was unacceptable
  and unsustainable

3
Possibilities for Future Economy

• Looked at competetive and comparative advantages
• Looked at international demand trends
• Four areas emerge
• High value added manufacturing
• Financial and Auxillary Business Services
• Smart Industries
• Tourism

4
The 1997 Trade and Industrial Strategy
Gauteng Economic Base
NEW ECONOMIC TRAJECTORY
OLD ECONOMIC TRAJECTORY
SHIFT TRAJECTORY

• Low GGP growth
• Low labour absorption capacity
• Periphery of global trends
• Standard of living decreasing

• Higher GGP growth
• Increased labour absorption capacity
• In line with global trends
• Standard of living increases

5
THE TO DO LIST

• Cross cutting strategy which includes all
  aspects related to factors of production and
  their interaction e.g.
• education, skills development,
• transport,
• urban planning,
• industrial policy
• Infrastructure
• Divided list into sections distributed around
  GPG departments
• One section was to do items related to economies
  of localisation

6
Economies of Localisation

• Theory that a state, province or city can put in
  place measures to support a specific industry or
  sector e.g.. San Jose, Birmingham, Johannesburg
• Idea is to invest in strategic economic
  infrastructure to support and expand identified
  sectoral activity via
• Economies of scale, specialist infrastructure,
  soft cluster support, supply chain completion
  so as to
• SHIFT COMPOSITION OF GGP AND EXPORT BASKET
• THEREBY INCREASING GGP AND EMPLOYMENT

7
Chain of Causality
Blue IQ Catalytic investment
Existing firms and Stakeholders expand
Strategic Infrastructure Investment
New firms crowded in
Spill over economic activity generated
GROWTHEMPLOYMENT
8
Project Examples

• Maintenance and Expansion of motor vehicle and
  component industry (ASP and AIDC)
• Support of Knowledge Intensive Industries (
  IH and BCat)
• Improved transport and logistics ( City Deep and
  JIA)
• Expansion of tourism product( Dinokeng, Cradle
  of Humankind, Newtown)

9
Implementation

• Design a SPV which has the following
  characteristics
• Limited life span (5 years)
• Limited project mandate (11 projects)
• Optimise interaction between public and private
  sector (Pty)
• Equity participation and exit strategy
• BIQ Investment Holdings
• 7 subsidiary companies 4 agency agreements
• 7 staff
• R3,2billion budget train
• Operations of BIQ
• Skills consortium
• Operating models

10
Company Model
Private sector/parastatal partner
BIQ Investment Holdings
Delivery Company
Phase 1 Infrastructure
Operations
BIQ Exit
Crowd in investment
11
Agency Model
BIQ
Contract with implementing agent
Create an Institutional Body
Delivery of infrastructure
BIQ Exit
Crowd in investment
12
MEASURING SUCCESS

• How will we know if BIQ is a success?
• Project delivery a necessary but insufficient
  result
• Projects are a means to an end not an end in
  themselves
• BIQ will have succeeded if
• 4 strategic areas contribution to GGP increases
• 4 strategic areas contribution to the export
  basket increases
• Labour absorption rate increases
• Total employment increases
• GGP grows
• Standard of living increases

13
TIMEFRAMES

• Success is incremental and non linear
• International case studies suggest 15 to 20 year
  time horizon
• 5 year indicators look good ( 1997 to 2002)
• Primary sector 1,8 1,3
• Secondary sector 29,2 - 23,9
• Tertiary sector 60 - 66
• GGP growth 3,3 pa (National average 2,7)
• Labour absorption up from 44,7 to 45,3
• Unemployment decreased by 1
• Data source StatsSA

14
Lessons Learned

• Investment in initial planning and negotiations (
  3 years)
• Strategic content informs structure
• Think outside the box
• Focus
• Establish credibility