ECONOMY: Wesgro Outlook For W Cape
Recent Western Cape Business News
The Western Cape Investment and Trade and Promotion (Wesgro) is cautiously optimistic that various sectors of the Western Cape economy could see increased trade and investment opportunities in 2011.
The Western Cape economy could strengthen this year on the back of an expected strengthening global economy from the third quarter, robust economic growth in parts of Africa and even South Africa’s invitation to join the strong emerging BRIC (Brazil, Russia, India, China) group of economies. As many of the Western Cape’s traditional trading partners are recovering and coming out of recession, this bodes well for the regional economy.
The renewable energy sector is set to get a much needed boost from government in terms of investment and regulations, while the tourism industry could build on widespread publicity from the World Cup 2010.
However, businesses need to look at the most beneficial long term growth strategies, focused on potential high growth markets, instead of focussing only on short term survival, Wesgro warns.
Wesgro economist Lisa Brown believes the invitation to join BRIC is a demonstration of international confidence in South Africa. These countries see South Africa’s potential to expand its position as the economic powerhouse of Africa, and as a prominent global emerging market. South Africa and the Western Cape could benefit from increased trade and investment within the BRICS grouping.
“South Africa is already China’s biggest trading partner in Africa and an important strategic partner on the continent,” says Brown.
In terms of trade, agricultural and agroprocessing exports in particular, from the Western Cape are expected to do well in growing markets, such as the Middle East, South East Asia and Africa, says Brown.
The Middle East, where food security is a concern, has a high demand for fresh and processed fruit and fruit juices. African countries, especially in the West African region, have a growing middle class and expat community with expanding infrastructure, particularly in oil and gas industries. The Western Cape could profit from the increased demand in this region for manufactured, industrial and agricultural goods, says Brown.
In terms of investment, the Western Cape should be promoting opportunities in manufacturing, renewable energy, tourism, creative industries and the services industries (IT, software and business process outsourcing; financial services; professional business services) due to cost competitiveness compared to other world cities.
Cape Town is being recognised as a safe and profitable location for international companies to establish offices or headquarters, creating spin-offs for local legal, IT, human resource and other support services.
According to the Provincial Economic Review and Outlook (PERO) for 2011, the provincial economy is forecasted to grow by 3.2% this coming financial year, an improvement on a forecasted 2.8% for 2010. Most growth is expected from the third quarter of 2011, when government strategy to address job losses is expected to have an effect.
Wesgro assistant economist Zokwanda Madalane believes the economy is on an upward cycle and is likely to peak in 2013-2014, based on the PERO forecast.
Wesgro Head of International Trade & Development Seanne Kube believes Africa poses one of the greatest trade and investment opportunities for South African and the world at this time, and the Western Cape is a favourable point of entry for foreign companies and individuals.
Through economic research and partnerships in South Africa and abroad, Wesgro has identified and is involved in creating various global opportunities in 2011 for local entrepreneurs. A number of inbound and outbound trade missions are planned for the year.
Opportunities range from South African filmmakers partnering with US film financiers, sales agents and distributors, and exporting services that address the converse US time zone, to the export of high end niche speciality food products to various markets, including the Middle East and South East Asia.
Wesgro also sees opportunities for specialised South African producers and exporters to respond to the growing middle class in Africa’s demand for more high-end, beautifully packaged products.
There is also room for opportunity in the mobile market. “Since there are so few databases available particularly in the less developed parts of Africa – sellers and marketers should consider making use of mobile phone networks to market their products to consumers in Africa. Other platforms and avenues that should be considered include informal and formal social networks”, says Kube.
Wesgro Investment Promotion Manager: Tourism and Strategic Projects, Robyn Williams, believes the Western Cape tourism sector should use this year to step up marketing and seek out new markets. Exposure to millions of television viewers during the World Cup has set a marketing platform for lucrative and relatively untapped markets such as the United States, India and Asia.
“We must look at who the new travellers are and market ourselves effectively before people move on. I believe more could be done to market the Western Cape as a business travel destination, especially during the quieter winter months,” she says.
Williams said many Cape Town five star hotels were competing on four star prices and four stars on three star prices to survive the recession, but analysts warn that this is not an advisable strategy for the long term.
Williams says the Western Cape is increasingly seen as a “soft landing” for international investors in tourism infrastructure who are interested in the African continent.
The year 2011 also promises to be an important year for the renewable energy sector.
“This is an exciting time for the local renewable energy sector. For many years we have talked about renewable energy, but now it is finally here, so 2011 is going to be a big year,” says Cobus Kotzé, Wesgro Investment Promotion Manager: Renewable Energy.
The Department of Energy will finally allow renewable energy project developers to apply for Power Purchase Agreements from Eskom to supply power to the national grid. Contracts will hopefully be awarded in the latter part of 2011. This is expected to put the Western Cape on the path towards building a Green Economy.
Wesgro Investment Promotion Managers: Agriculture, Mzokhona Mvemve and Salman Kajie see the members of BRIC and strong emerging economies in Africa as the Western Cape’s most important agricultural trading partners for 2011.
“We want to defend old markets, but we’ll also want to ride the wave of growth of BRIC. These countries are also trying to get into emerging markets and will look to SA to get into Africa,” says Mvemve.
Kajie says the Western Cape aqua culture industry is an industry to watch. A Mumbai company has already set up office in the Western Cape to export seafood into Africa as many African countries are looking to fish as a primary source of protein. There are already developed export channels for fish products to some African markets that can be taken advantage of.
A strong rand will hurt exports, but farmers have to hang on and start directing their exports to the strengthening African consumer base and other promising markets, says Mvemve.
The organic sector could also look forward to a level of formalisation by government this year, says Kajie.
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