Capetonians cannot boast endlessly only about their beaches, mountains and winelands. They can be justifiably proud of their economy too — the Western Cape has the highest growth rate of all the provinces, as well as the lowest unemployment figures.
The Western Cape has been the best-performing province for the past decade, with an average annual growth rate of 3,7%. While the South African economy registered 5% real GDP growth last year, the Western Cape grew at an estimated 5,5%. It also contributed 14,7% to the country’s GDP. About 50 000 new jobs were created and regional unemployment was 15%, compared with a national rate of 25,5%.
So what can the other provinces do differently and how can they catch up? Granted, it would be hard to match the region’s iconic tourist appeal, but it turns out the Western Cape’s success is a result mostly of its lack of commodities, coastal location and a proactive approach towards encouraging economic development.
“The Western Cape’s lack of mineral wealth can be seen almost as a blessing. This has forced the economy to be diverse and outwardly oriented. The strength of people skills has created a strong base for services industries,” says Angelo Manzoni, chief executive of Wesgro, the province’s trade and investment promotion agency.
These services industries — including the financial services sector, construction, retail, tourism, communications and film industries to name a few — account for about 75% of the provincial economy.
Having no real mining sector — where most job losses in the past 20 years were experienced — has helped the province’s unemployment figures, says economist Mike Schussler.
Lower interest rates also strengthened the services economies and tourism, he said, adding that the Western Cape “is our premium holiday destination by far, which has certainly helped the province”.
David Kaplan, chief economist at the Western Cape department of economic development and tourism, says the financial services sector has grown faster than others and this has contributed strongly to higher provincial growth.
The region’s coastal situation also is a factor. “As global trade grows, port cities invariably do better because exporters locate there as they have better access to world markets,” he says.
The province is highly export oriented, with about 23% of Western Cape GDP exported.
There is a shared goal to work together to foster economic growth. “The province and the City of Cape Town do have a lot of conflict — but they also manage to cooperate on a lot of important areas, such as recognising key growth areas and supporting special purpose vehicles to promote growth in these areas,” Kaplan says. The oil and gas, business process outsourcing, call centre, film and boat-building industries are a few examples.
“Through that dialogue you get a symbiosis, such that business and government work together for a collective aim, so it’s not a top-down approach. I don’t think the department of trade and industry has been as successful at this, as its policies often don’t have the confidence of all the players,” he says.
One area where the Western Cape stands out is that its demographics are different, with a better-skilled and better-educated population.
“Education goes hand in hand with employment, so that plays a very big role,” says Schussler.
Having matric or a post-school qualification helps employment prospects — 67,2% of working-age holders of matric in the Western Cape were employed in 2005, while fewer than 50% of those with no matric were employed.
However, the performance of the province’s economy is not clear-cut, says Pieter Laubscher of the bureau for economic research at the University of Stellenbosch. Despite the lowest unemployment rate in the country, employment growth in agriculture and manufacturing has been lagging.
“The Western Cape needs to grow the manufacturing sector — that’s where it could absorb more semi-skilled labour.”
Echoing this, the Western Cape treasury’s recently released Provincial Economic Review & Outlook states that while the overall provincial economic growth picture remains upbeat, “there is scope for stronger and more broader-based employment growth. The unsatisfactory employment picture is influenced by the struggling manufacturing sector and large-scale retrenchments in the agricultural sector.”
It says the underperformance of the manufacturing sector is a key challenge, as that sector is “best situated to absorb lower- and semi-skilled labour, of which there is an oversupply”.
The manufacturing sector’s contribution to exports is critical for sustainable high economic growth, the report says.