The Western Cape Economy and You

Living in Cape Town has given most of us a fair idea of the provincial economy’s strengths.

We know that Robben Island ferries, the cable car, the beaches and the Waterfront must, taken together, mean that tourism comprises a very substantial part of the province’s Gross Regional Domestic Product (GRDP). If you’ve lived in Cape Town longer than ten years, you also know that there used to be far less for visitors to do (in the neatly-packaged, commercialised sense). You would conclude from this that tourism has emerged from a low base in 1994 to become a key driver of employment growth and GRDP and you would be right.

If you’re a Capetonian of longer standing, you would also know that there used to be many more factories than there are now, and that where banks of call centre headsets now hang from identical monitors, women and men once made clothing, machinery and consumer goods. You might conclude from this that manufacturing is in long-term decline in our province and that services have expanded to fill the gap, and you would be right again. The Provincial Economic Review and Outlook report will tell you broadly what you suspect, if you keep half an eye out for ‘To Let’ signs, the health and bustle of our working suburbs, and who is and who isn’t expanding and prospering in the Western Cape economy.

One of the main findings of the report is that the Western Cape, which has no mining industry to speak of, has less to gain from South African export growth than manufacturing and mining provinces. In fact, the Western Cape economy remains deeply tied up in Europe as by far its single-greatest trading partner (40 per cent of this province’s exports go there, compared to only 25 per cent of South Africa’s exports).

But its 187 pages did contain a number of unmistakeable messages, not all of which are common sense, and some of which may surprise you.

Point One: We are about to have less money.

• Reason: “the combination of higher consumer inflation, softer wage growth and a weaker employment environment resulted in a slowdown in the rate of real disposable income growth” – page 40.
• Result: If we are not to give up on our dreams for a future Cape Town, we need to spend carefully to give the most deserving and Cape-made goods and services our custom.

Point Two: the Rand will stay weak (above R8/1USD) until Europe sorts itself out.

• Reason: Commodity prices – for all our minerals – will remain subdued for a while yet, and, while Europe’s deep structural problems radiate uncertainty throughout the world, the Rand as an emerging-market currency will look like a risky buy.

Point Three: The world cares as much about how we’re doing as what we’re selling

• Reason: as the PERO has it, “continued divisions in the ruling party perhaps creates the most important risk as it leads to uncertainty and crucially a lack of service delivery (including government infrastructure spending). An important risk factor that has arisen recently is the uncertainty resulting from labour unrest in the platinum mine industry and specifically the violence and the multiple deaths at the Marikana mine in the North West province. This is likely to have a negative impact on investor confidence in general but in the mining industry in particular”.
• Result: Serial crises at state level shout louder than individual excellence at a company level if you’re operating in a small market far from your major trading partners. Savvy South African firms and entrepreneurs will have to act with some effort to differentiate their sectors and brands from the intense and intensifying bad press that incidents like Marikana generate.

Point Four: If you’re in the Western Cape, stay here. If you aren’t, come here (but come with a trade or a skill or a diploma).

• Reason: our province has continued to grow at a rate well above the national average, partly because we here have no mining and rely very little on the casino of commodity prices. Growth is less spectacular but steadier in the Western Cape, and, in 2011, faster than the national economy (3.3% versus 3.1%).
• Result: Skill-hungry sectors like “Finance, Real Estate and Business Services” grew at 4.6 per cent in this province in 2011. Sectors like agriculture, in contrast, contracted by 2.2 per cent that year.

Point Five: Stay solvent and carry on; the worst is already behind us.

• Reason: the end of a wrenching recession may not yet have made itself felt in general prosperity (see Point One) but, with the massive proviso that Europe and the US generate no very interesting politics between now and 2013, this year’s feeble recovery (2.9 per cent for 2012) will hasten to a canter in 2013 (a rollicking 3.6 per cent).
• Result: Consumers should spend what they can and cautiously start normalising their purchases and forward-planning. Entrepreneurs and drivers of key city industries should anticipate a steady 2012-2017 period of solid 4 per cent growth in the Western Cape economy.

Point Six: Go East

• Reason: The Western Cape has banked heavily on Europe’s economic health – we sell the region 40 per cent of everything we make. While the rest of South Africa sells to Asia at nearly that level, Western Cape exports to Asia are about half that (23 per cent). While this continues, our exports will suffer.
• Result: It is long overdue for the Western Cape to tilt itself towards the resource-hungry rising giants a few timezones to the right of us. Firms and entrepreneurs who do this proactively and soberly should find that the dynamism of China and India (combined population: more than 2,5 billion) more than palliates the hurt of lost markets in Europe.

Download the full report here (PDF)