File picture: David Ritchie
File picture: David Ritchie

The basics of Cape Town’s economy

By Mike Wills Time of article published Apr 13, 2016

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In the current froth about budgets, rates hikes and capital expenditure, it helps enormously to understand some real basics of Cape Town’s economy, writes Mike Wills.

In the current froth about city budgets, rates hikes and capital expenditure, it helps enormously to understand some real basics. Cape Town is a service-driven economy. We manufacture or mine very little. Old school industries are bit players.

The jobs in this city are primarily in the moving of money and goods, and the supply of services to the people who do that. According to the city’s stats, 37 percent of our economic activity comes from finance, insurance, real estate and business services, a further 15 percent is in wholesale and retail trading and 11 percent in transport, storage and communication. And then there’s the sizeable construction industry, which only exists because it’s building things for all those people in the service arena.

Service jobs have no roots. There’s no reason for them existing in Cape Town other than the city providing an attractive enough environment for companies and individuals to be here. And many of those jobs service tourists who also only spend money here if the place seems desirable. There’s nothing inevitable about them coming year in and year out. We have to keep earning their dollars, pounds, yen, yuan, euros and up-country rands.

We’re only a mid-sized city. At three million we don’t have a big market which, on its own momentum, generates demand which compels investment. Gauteng has that kind of scale. Nor are we close enough to such a market, as Durban is, to offer an inherent logistical imperative for growth.

Our unemployment is off the charts at over 20 percent. That’s double comparable to cities in other developing economies. So we desperately need more jobs which, back to Point 1, will only come in significant amounts in service industries.

The national construct is not helpful. The South African economy has stalled, legislation usually hinders rather than helps employment (leaving our city’s Global Competitive Ranking below Beirut), and what’s necessary for the vast majority of the country isn’t always applicable down here. There’s also an undeniable political bias from Pretoria against the DA-led province, which sees potential developments in this part of the world cynically stymied or shifted.

We’re small and stuck in isolation with nothing to sell to employers and employees but ourselves, and we often have to go it alone at municipal level to make stuff happen which, ideally, would get national support. All of which makes the city’s budgeting such a tightrope walk.

We have to invest in rectifying huge inequalities, but if we neglect the elite end of town to the point where it becomes unattractive to workers and tourists, we could trigger a downward spiral that ultimately would affect the lowest income demographics the most.

Generally speaking, mayors Zille and De Lille, over the past 10 years, have navigated that rope pretty skilfully. Like most, I’m grumbling about a 6 percent rate increase, especially when compounded with last year’s brutal 10 percent hike, but Cape Town Economics 101 makes it almost seem justifiable.

* Mike Wills’ column Open Mike appears in the Cape Argus every Wednesday

** The views expressed here are not necessarily those of Independent Media.

Cape Argus

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