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After a decade of optimism and growth, many South African cities now face a new challenge compared to competing international locations, Cape Town Mayor Helen Zille said on Wednesday.
These include perceptions of instability and uncertainty, growing urban poverty, increased crime, conflict and corruption, she told the United Nations (UN) commission on population and development in New York.
Governments, especially local government, had a key role to play in halting and reversing this trend.
"But, neither the state nor the private sector can reverse this cycle on their own - both have a role to play in the right mix," she said.
The challenge was to "right-size" the state to fulfil its functions, facilitate competitive market entry both by producers and consumers, and build partnerships with "civil society".
This model had become known as the "developmental state" approach.
It required high skills levels in government, and dedicated co-operation with the private sector to fuel economic growth - the single greatest priority, Zille said.
Cape Town's infrastructure was under great strain. That was why the 5-year Integrated Development Plan had a central key focus: "Infrastructure-led Economic Growth".
Cape Town had just been through a 10-year positive cycle where skills and capital chose to stay and invest.
Confidence in South Africa's macro-economic policies and financial management resulted in an investment, property, services and construction boom.
"We have also become known for having academic institutions that 'turn out the kind of skills the global contemporary knowledge economy demands' - both universities and top schools. We have a functional (private) health system."
The city also benefited from the effective management of its natural environment in terms of tourism, she said.
However, remaining challenges included relatively slow economic growth of around five percent a year for the past decade, an estimate of a 25 percent unemployment rate, a growing population of political and economic refugees, and a skills shortage, which was the biggest brake on growth.
About 1,5-million citizens of Cape Town had not finished school, and the city was simultaneously facing an escalating skills exodus.
"We also have a housing waiting list of about 460 000 and 222 informal settlements around the city (150 000 shacks compared with 28 000 in 1994), and a growing crime rate," Zille said. - Sapa