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Could Cape Town challenge Johannesburg as SA’s economic hub?

Could Cape Town challenge Johannesburg as SA’s economic hub? [Image: www.travelstart.co.za]

Originally published by Moneyweb

South Africa’s economic history makes it a somewhat unusual place. Due the legacy of the gold mining industry, Johannesburg is by far this country’s most economically important city.

It is uncommon that an inland city that is not on a major trade river system should have this distinction in a country with such an extended coastline. There are other examples such as Mexico City, Madrid and Milan, but if one looks at a list of the world’s largest cities by GDP, most of them are ports.

This is because trade plays such a vital role in the development of any economy. And according to the International Maritime Organisation, 90% of the world’s trade is still carried by sea.

Given this reality, there is a compelling argument to be made that South Africa’s commodity riches have distracted it from the potential of its maritime economy. Although the country does have a number of ports and some large maritime businesses, it remains a rather under-developed sector given its potential.

“There has been a failure to move the consciousness of our nation to appreciate that we are a maritime country that lives off a maritime economy,” says the CEO of the South African Maritime Safety Authority (SAMSA,) Commander Tsietsi Mokhele. “Seventy-one percent of our GDP comes from trade, but it has not always been apparent that 98% of that trade happens on the back of ships.”

As South Africa’s largest port city, Cape Town features large in discussions around the development of this sector. And while, on its own, making better use of South Africa’s ocean resources will not turn the Cape into an economic region to challenge Gauteng, it does provide a platform.

It already appears that the Western Cape economy is on a different trajectory to the rest of the country. The region is attracting a great deal of internal migration, which is a clear indication of people seeing economic opportunity.

“In the Western Cape, we are proud of the areas in which we currently out-perform in a national context,” says the CEO of Wesgro Tim Harris. “In GDP growth we have been exceeding the national average by 0.5%, and unemployment is 10% lower here than the national average. This is a province of opportunity.”

He adds that business confidence in the Western Cape is also currently higher than it is nationally. The economic momentum in the region is demonstrated by how the number of new building approvals that are being granted. This tracked the national average until last year, from which point there has been a distinct up-tick.

“This shows the economic momentum that we have down here,” says Harris. “People are moving to our province to seek economic opportunity.”

Two areas that highlight the Cape’s ability to make use of its strategic location for economic benefit are tourism and the oil and gas sector.

Tourism

While Cape Town’s tourism potential is already well developed, much more can, and is taking place. The Cape Town Convention Centre is expanding, another major conference facility is being built at Century City, and Tsogo Sun is building two new hotels in the CBD.

However, one area where Cape Town is perhaps not anywhere near its potential is the cruise ship industry. Mokhele argues that this is a major opportunity.

“Tourists are tired of the usual itineraries and are looking for something new,” he says. “Cape Town and South Africa can become major cruise destinations.”

Earlier this year, the Transnet National Ports Authority awarded the tender for an upgrade of the Cape Town cruise ship terminal to the V&A Waterfront. This will increase the capacity of the harbour and also make it a more attractive destination.

Oil & Gas

Currently the oil and gas sector is the largest contributor to the Western Cape’s economy. Crude petroleum accounts for around 92% of the region’s imports, and refined petroleum products are currently its biggest export.

Activity in this sector is centred around the Caltex refinery, which has also led to both upstream and downstream investment. However national and provincial government are working together on a project that will tap into a different, and potentially vast, source of revenue.

“There is a plan to build infrastructure at Saldanha Bay to create the first oil and gas service hub in Africa,” says Harris. “Currently almost all of the oil rigs working off the continent are being serviced elsewhere. We want to start servicing oil rigs drilling for African oil, in Africa.”

Mokhele says that creating a major rig repair and services centre would have huge economic benefits. Each oil rig service brings in around R400m and there is the potential to create 25,000 jobs at the facility.

A gateway to Africa

On their own these may seem like fairly small matters, but these are incremental changes that are bringing a greater focus on to the Cape’s potential. There will be no changing the fact that Johannesburg will remain South Africa’s financial hub, but the Cape offers different possibilities.

Areas like renewable energy, business services, information technology and communications are all seeing growth in the Cape. For many companies, this is becoming a preferred location.

Already multinational businesses are coming to appreciate that Johannesburg is not the only place in South Africa from which to launch a continental footprint. A number are setting up in Cape Town first. And that is a compelling endorsement of the region’s growing status.

“If the Cape is seen as a place for a company to think about its African strategies, then I think that is a very exciting vision,” Harris says. “Traditionally they have chosen Johannesburg, London or Dubai, and we want to add Cape Town to that list.”


By: Patrick Cairns, Moneyweb 

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