Industrial cluster formation as a strategy to diversify a sub–national economy: illustrations from South Africa's North West Province

Abstract

Economic modelling techniques can assist policy makers to understand the effects of policy or external shocks and to make informed decisions about economic development programmes. Economic diversification is a priority of resource-dependent regions such as South Africas North West Province (NWP) in the wake of the 2014 platinum strike. The economy of the NWP is highly specialised and dependent on a few sectors - in particular, mining and quarrying. Both the NWP and the South African economies were adversely affected by a prolonged strike in the platinum sector.This paper sets out to illustrate the effects of industrial cluster formation as a strategy to enhance competitiveness in the NWP and diversify its economy using SAM multiplier analysis. The supported activity of eight of the ten industrial clusters was shown to be greater than the actual activity, indicating that industrial cluster formation will enhance economic activity in the NWP. Of the ten identified clusters for the NWP, four were found to be moderately integrated and to have high upstream effects. Finally, structural change in the NWP economy through industrial cluster formation was observed using economic landscaping. A key finding was that the identified industrial clusters are significant contributors to the structural change of the NWP economic landscape with the promotion of cluster-specific exports. It is recommended that the North West provincial government adopt this strategy with a view to enhancing competitiveness and economic diversification.