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ECONOMY: Cape Stands Firm In Tough Times


Recent Western Cape Business News

STATISTICS recently released about economic growth trends in four South African provinces suggest that the Western Cape is less severely affected by the growth downturn since 2007. This would be in line with comparative trends observed during the late 1980s and the 1990s when South Africa’s economy went through several growth declines. In fact, it would confirm one of the basic characteristics about the Western Cape economy in its post-1980 resurgence which Wesgro tried to understand and explain in the 1990s.

Let us first clarify what Mike Schüssler, the brain behind the ‘Sake24/BoE Private Clients provincial barometer’ is saying. The provincial barometer measures levels of business activity in the private sector of Gauteng, the Western Cape, the Eastern Cape and the Free State, taking into account latest stats and changing trends.

If we look at the overall growth performance since early 2004 the Western Cape shows the highest level (comparable to the highest annual growth) and, what is even more important, for the 12 months February 2008 to 2009 it shows a less severe decline compared to Gauteng and the Eastern Cape. (The Free State actually has an even lesser decline, but that is from a far lower growth level, given the steady decline of gold mining in that province over the past decade.) In fact, compared to Barometer declines of (-) 14.8% for the Eastern Cape and (-) 15.8% for Gauteng, the Western Cape had a decline of only (-) 7.3%.

What could be the reasons? With respect to Gauteng there are a few obvious ones, viz

with virtually no mining, the Western Cape economy doesn’t suffer from lower mineral prices, mining closures and lower exports of minerals;

Gauteng’s sophisticated capital goods industry is also more severely affected by declining domestic as well as foreign demand for these goods (with the motor car industry particularly severely affected – in Gauteng and even more so in the Eastern Cape)

as the centre of South Africa’s financial sector ‘protective’ action by banks and other financial institutions has been far more extensive in Gauteng then in the Western Cape, also resulting in greater job losses.

At the same time, the Western Cape’s strength has over the past few decades been the broad base and relatively balanced nature of its sectors.

Its agricultural sector is relatively large and well diversified, including several exportable commodities whose prices have been less volatile.

Both fishing and forestry sectors face supply problems, but the sub-sectors are still significant in the local economy and experience good prices.

Manufacturing in the Cape is also diversified, with only limited involvement in the motor industry and with the clothing and textile industry already for years going through a tough restructuring process.

The construction sector is – like in other parts of South Africa – relatively buoyant and faces a broad demand profile, even though many individual projects may have to be postponed or reconsidered.

With significantly lower unemployment levels (than the national average) the negative impact of job losses may also be less severe on the local retail sector than elsewhere in the country.

The other services sub-sectors – like financial, property and business services, education and health services and transport as well as communication – are also less severely affected in the Western Cape and, more importantly, those are sectors where the local skill-supply base is stronger than in other parts of the country, which helps to overcome tougher competition and sudden market changes.

Finally, the tourism sector is of great importance for this region. Here the diversity of visitor segments drawn to the Cape helps to cushion drastic declines in some of these segments. Compared to 30 – 40% declines in upper-income tourist arrivals from the USA and Western Europe, the Cape has become more attractive as a medium-distance destination for Southern Africans who cannot afford transcontinental tourism at this stage. Thus, many of the traditional tourism places in the Western Cape look back on a ‘reasonable 2008/9 season’.

What does all this tell us? Apart from a simple ‘Don’t panic, (especially since there are now clear signs that the world economy nears a turning around) it challenges us to take the diversity of the Western Cape economy very serious, so that we can maintain our competitive position in the wide range of subsectors and niches.

It also tells us to be cautious about currently popular ‘radical steps’ to address unemployment and industrial competition from global suppliers. Its diversity and its attractiveness to local, up-country, trans-African and global business partners add up to the strength of this regional economy. Dramatic protectionist steps or inward looking monetary or trade policies will not be able to help us much – but can seriously antagonise our growth partners of tomorrow. In each sector we have to look for the less dramatic, incremental and own-initiative based steps to address current challenges, rather than hope for government or others to get us out of the crisis.

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