“An economy’s competitiveness cannot be reduced only to GDP and productivity because enterprises must also cope with political, social and cultural dimensions. Therefore nations (and regions) need to provide an environment that has the most efficient structure, institutions and policies that encourage the competitiveness of enterprises” - IMD World Competitiveness Yearbook 2012

Measuring the business and investment climate The business climate and the investment climate are well-established concepts in macroeconomics They usually refer to national rather than local and regional dimensions Increasingly, they are being applied to city and regional levels

The role of business and investment climate performance indicators Promote learning and orientate stakeholders toward results Provide information to enhance decision-making – For business to determine and validate investment plans and to assess locations for new operations – For government to benchmark policies – Analysts evaluate how nations (and regions) and enterprises compete on world markets Promote participation, capacity development and good management practices Improve transparency and enhance accountability

Example: Factors that determine the quality of a business climate - International Economic Development Council, 2011 Business tax levels Workforce availability Energy costs Market size Quality of services Cost of living Quality of life Environmental regulation Permitting & licensing Real estate costs and availability Infrastructure Access to financing, capital & incentives

Example: World Bank Ease of Doing Business Index, 2011 Enforcing contracts Protecting investors Starting a Business Dealing with construction permits Trading across borders Getting credit Registering property Closing a business Paying taxes

Example: 12 Pillars of Competitiveness – World Economic Forum 2011/12 Global Competitiveness Report

South Africa competitiveness ranking 50/142 – World Economic Forum 2011/12 Global Competitiveness Report Strengths Market size (25 th ) Quality of institutions Property protection (30 th ) Property rights (30 th ) Accountability of private institutions (3 rd ) Goods market efficiency (32 nd ) Weaknesses Labour market efficiency (95 th ) Rigidity of employment practices (139 th ) Lack of flexibility in wage determination by companies (138 th ) Significant tensions in labour- employee relations (138 th ) University enrollment (97 th ) Infrastructure upgrading (62 nd ) Business costs of crime and violence (136 th ) Police unable to provide protection from crime (95 th ) Health of workforce (129 th )

Ranking the ability of nations to create and maintain an environment in which enterprises can compete Example: World Competitiveness Yearbook 2012 – IMD World Competitiveness Centre, Four competitiveness factors, 20 sub factors, 329 ranking criteria

South Africa competitiveness ranking 50/59 - IMD World Competitiveness Centre Strengths Fiscal policy (8 th ) Prices (7 th ) Effective legal environment Quality of corporate governance Dynamism of the economy Open and positive attitudes Weaknesses Unemployment rate 25% (59 th ) Labour market (56 th ) Basic infrastructure (55 th ) Education (50 th ) State competency Research and development Skills of workforce

Example: Creation of conditions in which SMEs can thrive – OECD Istanbul Declaration, 2011 Laws & systems of governance Stable macroeconomic policies Enabling regulatory frameworks SME assistance & development programmes Human resource policies Reduced barriers to SME access to global markets Access to financing of SMEs

Example: Specific focus on human capital People Risk Index – AON Consulting, 2010

Example: Vietnam Provincial Competitiveness Index – DAI and The Asia Foundation, 2011 Entry Costs Land access and security of tenure Transparency and access to information Time costs of regulatory compliance Informal charges Proactivity of provincial & local leadership Business support services Labour and training Legal institutions

Example: The characteristics of business-friendly cities and regions – Greg Clark, 2011 Local & regional business climate (product) Economic potential Cost effectiveness Commercial incentives & regulatory effectiveness Quality of life Human resources Infrastructure Local & regional business climate (image) Business & investment climate promotion Existence of promotion strategy Number of staff & programmes Number of global events Delivery of business services Networking and capacity building Inward investment facilitation

Multiple dimensions of business and investment climate success – Greg Clark, 2011 Scale specific B&IC success is determined by processes that are international, national and sub-national Sector specific For example, export businesses will have different needs to SMEs in services sector Business type specific Needs of MNCs, SMEs, entrepreneurs and informal sector differ More than regulation and legal frameworks Connectivity, quality of life, cost, human capital, markets, environment More than FDI attraction Establishment, growth and retention of existing businesses as important

Conclusions Economic governance matters! Measuring the regional business & investor climate, and acting to continually improve it, requires an inter- governmental, transversal and cross-sector partnership approach There is no optimal design for a performance indicator system – we must set clear regional objectives before we determine factors and criteria to be measured There is a need to differentiate those factors which fall within the ambit of sub-national government and those which are part of national government

Initial inputs to Cape 2040 Index Numeracy and literacy Educated Cape Employment levels E nterprising Cape Networks and collaborative capacity Connecting Cape Basic infrastructure Living Cape Energy stability and cost Green Cape Leading change Technological infrastructure & readiness Quality of life Transparency and access to information Health and safety Proactivity of local and provincial leadership Water security and cost Institutional maturity Time and costs of regulatory compliance starting a business Innovation Basic connectivity infrastructure – transport & broadband Technical and Tertiary education enrolment No of patents Carbon footprint

Next steps Workshop in July to be hosted by Western Cape Government Red Tape Reduction Unit (under auspices of Economic and Infrastructure Steering Group) EDP Business and Investment Climate working group to be established

Vision and strategy Data and intelligence Business & investment climate Regional economic delivery system performance What do we currently measure? What data is available? Who is doing the measuring? Do we agree on the data? How do we apply the data? Why do we measure? What should we measure? How should we rank performance? How do we improve the performance of the regional economic development system? How do we assist organisations to deliver better on their own mandates? What is the shared vision? What are the key transitions? How do we navigate these transitions successfully? Leadership is required to open spaces for experimentation and innovation, identify trade-offs, make the tough choices, and to persuade and inspire