MENU
 Registered users can save articles to their personal articles list. Login here or sign up here
  Author profile
 
  10 COMMENTS

  Cape Town also appeals to ANC members in denial like Cyril who recently bought a R30m property. Also they flock to CT at every opportunity such as the jazz festivals because it feels like a different...  

 Registered users can save articles to their personal articles list. Login here or sign up here

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

Based on the maritime economy

Cape Town – 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 R400 million 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.”

   10 comments

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up here

To answer the headline: It already is.

Give it 10 years and we can talk again

Johannesburg’s original sole raison d’être was the gold and other mining industry which is rapidly evaporating. Of course, other industry and commerce has assumed the bigger economic role in Joburg, but superior governance may well see Cape Town win out in the long run (on the current trajectory). There is local precedent for towns that have seen mining booms and busts – Kimberley was once the 2nd largest town in the country during the diamond boom. It is now the 17th largest.

Durban is a much better contender for being a maritime hub. It’s closer to Johannesburg, has better transport linkages and is on the Indian Ocean.

Whatever one’s political persuasion, it’s hard to argue against the obvious fact that CT is experiencing internal migration from Gauteng because it is DA run, and appeals to supporters of that party.

They come because it is a generally well run city, it is clean, things work and there is a lot less corruption ( smart meters etc). Besides it is one of the most beautiful city’s in the world, who would not want to live here. Who cares who is running the place? Just do your job!

Cape Town also appeals to ANC members in denial like Cyril who recently bought a R30m property. Also they flock to CT at every opportunity such as the jazz festivals because it feels like a different country as services are actually being done and traffic lights work. The options of BEE workers are also on a much higher level as you move south

Interesting that “Currently the oil and gas sector is the largest contributor to the Western Cape’s economy.”

The last thing we want down here is to be locked onto a mono-economy and if only we could sort out the rail transport and take some strain off the roads, it would be excellent to have a more diversified economy here. Some more high tech manufacturing, fashion manufacturing and a few corporate HQ’s would be a good start.

“Currently the oil and gas sector is the largest contributor to the Western Cape’s economy. “- Incorrect, Finance, insurance, real estate and business services was at 29.9% the largest contributor to the WC economy. Electricity, gas and water accounted for 2% in 2014.( 2nd smallest)

Nope.. it lacks the scale required via land in particular so the economies of scale is lesser. Combo this with land prices(scarcity model), upper income skew vs entry level for professionals(we not even talking skilled or unskilled even) due to top piggies feeding you quickly realise why Cpt encomic populous resembles SA in the 90’s and has not changed.

Ironically I will eventually move back to Cpt to work there at the top end of the spectrum but i always feel sorry for anyone who starts working there.. life is crappier there.

BTW as a Cape Townian with eyes open, unlike the majority from Cpt.. Please realise that Cpt is a dorpie compared to Jhb & Pta combo/separately even.

You realise this the longer you stay here and you can see that Cpt is not even the air transit hub anymore.. this changed as soon recession hit. Personally I think things in SA is pretty cyclic.

Latest Currencies

ZAR / USD
ZAR / GBP
ZAR / Euro

MONEYWEB NEWSLETTERS

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Podcasts

Moneyweb Investor Issue 24

The relative strength of the rand has seen South Africans relax since the cabinet reshuffle and sovereign downgrades by S&P and Fitch. Don't be deceived - this is a self-inflicted wound. In the May issue of The Moneyweb Investor, we take a closer look to see which companies are likely to thrive and which will not, in the post-downgrade world.

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.16.0.15