SA must claim gateway status

INLSA

Picture: Antoine de Ras

Hubs can exist only in regions that are generally fragmented and disorderly. In developed regions, the market for hubs is closed - London, Frankfurt, Zurich, New York and Los Angeles are fully established.

It is important to state upfront that countries are not hubs or gateways, but rather cities are. A key trend in high growth emerging regions in recent times has been the creation of new hub cities - Dubai servicing the Middle East, Singapore in South-east Asia, Hong Kong for Greater China, and Shanghai as a new emerging hub for central and northern China.

Africa does not have a hub. African countries are only beginning to compete with each other for capital and investment. African cities have yet to start competing - this will be a driver of competitiveness and growth for the continent in future. No African city has seized the "first mover advantage" and staked its claim to be a gateway to the region: it should be us. The opportunity cost loss of the government (with support from business) not pursuing this truly strategic prospect will be high and long term.

Africa is at the beginning of a long-term growth trend that might naturally result in the deepening integration of Africa into the global economy. While SA's geography is not in our favour - located at the southern tip of the continent - our cities should be leveraging their comparative advantages to create clusters of service excellence.

Johannesburg should be the corporate HQ for multinational business expanding into Africa. The financial services, capital market and professional services clusters that exist in Sandton could be bolstered through creative tax incentives to attract multinationals to establish their regional headquarters.

Singapore's Economic Development Board has attracted over a third of Fortune 500 firms to the city state - attracting companies, capital and, most importantly, talent.

The World Economic Forum has stated that "hubs and clusters are about people? they should be places where good people want to go."

Policies help, but success will always be determined by talent. We seem to be unwilling to attract global talent into our economy, rather adopting a narrow zero-sum perspective believing that a "foreigner" will take a local job. Mauritius is increasingly offering an alternative financial services hub for Africa. Joburg's "hardware" is excellent. The world-class OR Tambo International Airport and connectivity through the Gautrain reinforces Joburg's claim to gateway status - but far more work is needed on the policy "software".

Durban is a logistics hub for the region, but only by default.

Its port was the 46th busiest port in the world in 2010. But it enjoys this position only because other potential competitors in the region have yet to grasp the importance of competitiveness. Maputo, Beira, Dar es Salaam and Mombasa are all underperformers.

As a result, Durban is not truly competitive in global terms.

Bloomberg reported in August last year that state-owned Transnet charged an average container vessel $182 151 (R1.372 million) to dock at Durban port.

This is more than double the global average of $86 251 and the highest of any of the top 100 harbours.

This is the price of nationalisation - higher costs and lower efficiency due to the stifling of competition. With the drive to regionally integrate the economies of southern and East Africa, Durban must improve its competitiveness to continue to be the logistics services hub for the region. With greater focus and effort, Maputo may usurp that position.

With booming oil- and gas-driven economies along the west coast of Africa, Cape Town should be competing to be the corporate and oil and gas services hub for the region. Infrastructure, services and living environment are all comparative advantages. But increased port efficiencies and policy incentives to attract companies are required to bolster Cape Town's claim.

The competition will come from Walvis Bay and perhaps Luanda, again because West African countries have been unable to create a regional hub - Singapore-style - in the region. Accra, Libreville and Port Harcourt have all failed to seize the first-mover advantage.

Cultural and linguistic differences are the most difficult challenge for South Africans to overcome in Francophone and Lusophone countries. There are 404 million English-speaking Africans. This in itself is a sizeable market. The trend towards consolidation of businesses in the tax, audit and legal sectors across Africa will over the medium term reinforce SA's claim.

Every region needs hubs of service, and to be driven by talent. SA cannot claim to be the gateway to the continent unless we begin to understand this imperative and also realise that the region will increasingly compete with us.

Our competitors have traditionally been a minimum of nine hours' flying time away - now for the first time they are emerging in our own region.

Africa is changing rapidly, and competition is no longer just between companies. The SA government must be more agile to create the enabling environment for clustered business to build recognised hubs. Through the creation of efficient, competitive and attractive hubs, SA should be the gateway to the region, which remains very much a frontier market.

* Dr Martyn Davies is CEO of Frontier Advisory