Cape Town, affectionately known as the Mother City by locals and visitors alike, is one of the most visually captivating places in the world. South Africa’s oldest city flaunts a unique topography nestled between the deep blues of the Atlantic Ocean and the ruler-straight crags of Table Mountain at the very Southern tip of Africa. Cape Town’s natural wonders, cultural heritage and modern attractions have cemented its reputation as one of the continent’s must-see destinations, however it’s reputation as a world-class business and investment hub continues to go under the radar somewhat.
The city has undergone a period of sustained economic progress over the last decade, with several high growth sectors driving innovation and much-needed job creation. The City of Cape Town’s Enterprise and Investment department aims to create an enabling environment for investment by positioning it as a forward-looking, globally competitive business hub. ABN’s editor speaks to the City of Cape Town’s director for enterprise and investment Lance Greyling about key sectors, overcoming challenges and the future of the Mother City.
Jacob Ambrose Willson: How much has changed in Cape Town over the past 10 years in terms of its development into a leading investment hub on the continent?
Lance Greyling: A lot has changed over the last 10 years. We have seen economic growth over that period and its been higher than the national average, but its still not at the level that we want it to be at. We’ve got the lowest unemployment rate out of all the metros in South Africa, but it’s still around 21%, which is far too high for us.
While there has been progress in the last 10 years and Cape Town has grown, we still think there’s a lot more work to be done to put it on a faster growth trajectory. That’s what we are hoping to do in the next five years.
Our approach to the economy is not to pick winners but to analyse it and find out which sectors are showing good growth. Once we have identified certain sectors, we work to support them in the best way, so that the city can benefit from job creation.
In the last 10 years we have seen the emergence of certain high growth sectors in Cape Town, such as the green economy. We’ve seen a lot of investment into the green economy, particularly in terms of the manufacture of renewable energy components to support the national renewable energy programme.
For example, we have seen investment come into Atlantis, which is a particularly poor area on the outskirts of the city. We put the focus on Atlantis with an incentive scheme particularly around the green economy, and that has worked wonders in terms of attracting companies to the area and creating much needed jobs for residents there.
In fact, it’s worked so well that nationally they’ve now designated a portion of Atlantis as a special economic zone. There is going to be even greater national incentive, so we should see an acceleration on that front as well.
The other sector we have seen emerge very strongly is the tech industry in Cape Town. We’ve got the most tech startups here than anywhere else on the African continent. Tech is also an enabler for many other sectors as well, so it underpinned the growth of the economy in other areas.
One other area that has emerged in the last 10 years is business process outsourcing (BPO). The onus is around call centres, and it’s attracted a lot of international call centres to set up here. But now because of our tech capabilities, we are moving up that value chain as well. I’ve seen some very diverse, technologically capable BPO services developing in recent years.
JAW: How important are the tourism and property markets to Cape Town in terms of continuing to attract foreign direct investment?
LG: Tourism is an important sector in Cape Town’s economy, but I think most people’s image of Cape Town is that we are just a tourist city. While we certainly are an iconic tourist city and we want to grow that reputation further, we want to highlight that we are also a business city.
Tourism currently makes up around 4-10% of our economy, so it’s not the dominant sector in Cape Town’s economy, which is interesting. We have found that the dominant sector here is financial services, which makes up around 34%. It’s also interesting that manufacturing continues to make up around 16%.
We have a diverse economy which isn’t dominated by one sector. Nonetheless, tourism has grown and we have seen more investment into the sector over the last few years with about five hotels that are being built or have been completed, and there is more being planned as well.
The real estate sector is another big one for Cape Town. We had a huge property boom for several years, but that has levelled off a bit recently. However, we predict that will go up again over the next few years. That has been an important sector for us in terms of sustaining the economy.
JAW: Going back to the tech sector, what does it mean to have the two of the biggest tech businesses in the world (Amazon and Microsoft) recently move into Cape Town?
LG: I think it’s a huge feather in our cap, particularly to have Amazon here. An interesting fact that people don’t know is that the whole cloud computing mechanism was in fact invented here in Cape Town by Amazon.
We are very proud to have given this to the rest of the world and that’s certainly been something we have talked up. There are two different components to Amazon’s operations here. The first is Amazon call centres, which they have set up and are expanding to deal with their global markets from Cape Town. We are currently looking into how we can support their expansion here.
The other side which has also arrived here recently is the Amazon web services. Amazon are in the process of setting up three big data centres in Cape Town and that’s been a huge investment they have made into our city. We worked very hard over the last few years to facilitate that.
We think that really cements our image as the tech hub of Africa, and not just of Africa but a global tech hub. We want to grow that reputation over the next few years, and with that investment we are going to have, the capabilities are there to really drive that reputation.
It’s a huge endorsement for us that a massive company like Amazon has seen Cape Town as the place where they are looking to grow their presence and use our services.
JAW: To what extent would you agree that domestic and international businesses are beginning to favour Cape Town over the traditional business hub Johannesburg?
LG: I think Joburg is always going to have certain offerings and it has an economy that is slightly different to Cape Town’s. It’s built off the minerals and energy complexes up there, so there is a momentum around that and we don’t have that.
But we are showing strong growth in sectors which also seem to be growing globally as well. That is why a lot of interest is being paid to Cape Town now as opposed to some of the other cities in South Africa. It’s about carving out a certain niche and attracting the sorts of companies that are in high growth sectors.
We are certainly building up momentum in that area, but we don’t see ourselves in direct competition with Joburg. We see ourselves in competition with cities around the world. Our goal is to attract investment for Cape Town, but also to be part of the Africa rising narrative, and we want to think of how we can support African growth as a whole. That’s how we are trying to position ourselves.
JAW: Despite all of these great developments, Cape Town is faced with challenges including unemployment, socio-economic inequality and water shortages – How can the city tackle these problems?
LG: One of the things I have noticed during the recent water crisis was the great collaborative spirit that exists within Cape Town now. I actually think the water crisis could be a positive in the long run because it forced us to collaborate very extensively with the private sector to overcome what was a huge existential threat to us.
It was the worst crisis that Cape Town had faced in its history, but the real positive to take out of it was we achieved what other no other city has been able to achieve. And that was to drive down water demand by more than half over a period of just a year.
It was thanks to all Capetonians working with us, including businesses who played a big role, that we were able to avert the worst of that water crisis. What I saw was a city that can come together and prove to be resilient in the face of threats, which are going to become more commonplace in places around the world.
But it was a stressful time for all of us! We certainly made a concerted effort to get out there and involve the public and private sector in finding solutions. I’m proud of the work all Capetonians did in averting that crisis.
Going forward, we have revised our water strategy and come up with a new one that deals with the phrase called the ‘new normal’. We anticipated that our water resources would become constrained, but what we didn’t anticipate was how quick this was going to happen. We projected this would happen in next 10 years or so.
But we’ve had to change all of that because of this new era of climate change, and we’ve now come up with a plan that will build water resilience into our system, through a mixture of desalination, aquafer drilling and various water sensitive measures.
JAW: Finally, what is your outlook on the next 10 years of development in Cape Town?
LG: I think we do have challenges and we are very alive to those challenges, so I’m not going to say everything is going to be rosy going forward for the next 10 years.
But, I think we have been able to position Cape Town as a global African hub which is attractive to international companies. And going forward, we will get more investors into some of those key growth sectors I previously mentioned.
The Enterprise and Investment department is trying to invest in a skills pipeline now to make sure there are no constraints on the future growth of those sectors.
One of the key problems we face in South Africa is a skills mismatch. We have a lot of people that don’t have the skills to take up the opportunities that are being created in these growth sectors of the future.
One of our main challenges is to put in place a skills pipeline and support initiatives along the private sector to make sure people are skilled in those areas and able to take up opportunities in those sectors.
I do think if we get those equations right, then Cape Town has a very promising future, particularly when you tie it to the growth of the African market, and the fact that the Africa is going to be the largest single market in the world within the next 20 years.
We see ourselves playing a key role in that, providing a kind of backbone to that African growth, particularly on the services side. I think if one looks at the African trajectory and places Cape Town as part of that, they will see a very bright future for the city.
There is a lot of work for us to do over the next 10 years and our fortune is also linked to the national economy as whole, but I also see our fortunes being linked to the continent. Over that period, we will see the African market developing as free trade agreements start to kick in across the continent.
Overall, I think there are going to be immense opportunities on the continent and we are the perfect gateway for foreign investors to take those opportunities.