Why the Western Cape is winning

The Western Cape is booming from a record influx of international tourists and a steady stream of semigrants from other provinces, drawn by its natural beauty, better employment prospects and stellar track record of good governance.

These pull-factors have allowed the province to leapfrog Limpopo and the Eastern Cape over the past two decades, taking it from being the fifth most populous province with 5-million people in 2001 to the third-largest with 7.4-million people in 2022, after KwaZulu-Natal (12.4-million) and Gauteng (15.1-million).

Since 2011, more than 20% of the province’s population growth has been due to the in-migration of people, mainly from the Eastern Cape, followed by Gauteng and then from abroad, according to Stats SA’s 2022 census.

The good news for the Western Cape is that people are recognising that it is the province with the fastest jobs growth.

According to Stats SA, the province created 239,000 net jobs between the fourth quarter of 2019 and the fourth quarter of 2023. This exceeded KZN in second place, with 192,000 jobs, followed by Limpopo, with 99,000. Gauteng, the only other province that is rapidly urbanising, shed a net 64,000 jobs over the same period. Nearly all the other provinces also shed jobs on a net basis.

The bad news is that despite being the third-largest province by population, and the one that is growing the fastest, the Western Cape receives only the fifth-largest budget allocation among the provinces.

The allocation from the national government to a province is determined by the provincial equitable share (PES) formula, which depends on factors including annual changes in provincial school enrolment, medical aid membership, health facility visits and Stats SA’s Midyear Population Estimates. 

The National Treasury has been unable to update its PES calculations to factor in the census 2022 data because most of the required data is not yet available from Stats SA at the disaggregated level.

Western Cape premier Alan Winde, who has repeatedly raised his concerns on this matter, is considering another formal intergovernmental dispute against the Treasury, demanding the province’s fair share. By his estimates, the Western Cape will be shortchanged by almost R380m over the next three years if the PES is not fully updated. (The Treasury could not corroborate this figure, saying it rested on various untested assumptions.)

This will be the second formal dispute Winde has declared against the Treasury. The first, last year, was over the Treasury’s failure to fully fund the provinces for the cost of absorbing the 2023 public sector wage settlement.

This has left the Western Cape R1.1bn out of pocket for the 2023/2024 year alone and forced Winde to make painful cuts to services. In addition, nationwide fiscal austerity dictates that the province can expect a net cut of R1.13bn to its conditional grants and a further R6.36bn to be sliced from its overall budget over the next three years. (The latter amount is more than the combined budgets of the provincial departments of police oversight & community safety, economic development & tourism, and cultural affairs & sport).

Both these intergovernmental disputes highlight the same problem — that the Western Cape is dependent on national government for nearly all (93%) of its funding. And while it may be booming, the rest of the country is not. This severely constrains the province’s ability to increase spending to stimulate economic growth.

Moreover, the province’s mandate is limited by the constitution to, largely, providing education and health care — public services that also cannot shift the growth dial in the short to medium term.

What Winde really needs control over — the inefficient harbour, the defunct passenger rail service, the issuing of skilled work visas and the underresourced police service — are all national competencies.

The national government has proved unable to effect meaningful improvements in any of these areas but has nevertheless resisted devolving power to the province.

“National government must come to its senses and realise, just as it cannot manage our rail network, just as it has allowed our country to slip further into the darkness of the energy crisis, its stubborn grip on the South African Police Service is only throttling it to death,” says Winde.

Not fast enough

Despite its relative success — the Western Cape has the lowest unemployment rate in the country at 20.3% vs the national average of 32.1% — it is going to need to grow much faster to keep pace with the future growth in its labour force. The solution, it believes, is to achieve “break-out growth”.

The province’s Growth for Jobs (G4J) strategy sets the ambitious target of expanding the provincial economy by 40% into a R1-trillion economy by 2035. This would require an average annual growth rate of 3.8% until then, against the province’s average growth rate of about 1.8% over the past decade (excluding the Covid year of 2020).

Achieving the G4J target would create more than 600,000 new jobs by 2035, assuming South Africa’s historic national employment multiplier holds.

But, given that provincial performance is constrained by overarching factors such as national fiscal and monetary policy as well as national logistics and other state failures, it seems highly unlikely that the province could ever decouple from national trend growth.

However, perhaps it’s not necessary. University of Cape Town professor emeritus Mike Morris believes it’s wrong to think a growth spurt in the Western Cape requires a decoupling from the national economy.

“Of course, that’s not possible nor is it desirable,” he says. “One can have major regional growth within a country based on implementing an innovative set of policy proposals, targeted incentives, and practical assistance for investment. This has happened in other countries — the Midlands in England, Carolina in the US.”

The question, he feels, is rather whether the province and City of Cape Town can use its current competitive advantage, good governance and the desire of the middle classes in Gauteng and KZN to migrate down south, to facilitate investment growth — especially the kind of jobs-rich growth that can mop up masses of unskilled labour.

In short, can the province and the city continue to excel when the rest of the country is stagnating, and large parts are rapidly regressing?

“It’s absolutely possible and it’s my mission to make sure it happens,” says Cape Town mayor Geordin Hill-Lewis.

“The idea of protecting ourselves from state failure and outside vulnerabilities permeates all our projects and planning and is the way we guarantee the future thriving of the city,” he adds.

For Cape Town, this comes down to “keeping ahead of the pressure curve” in infrastructure investment.

“So much of South Africa’s cities’ failure comes down to just one thing: the failure to invest properly in infrastructure,” says Hill-Lewis. He believes this is the key difference between Cape Town and other metros.

So much of South Africa’s cities’ failure comes down to just one thing: the failure to invest properly in infrastructure

—  Geordin Hill-Lewis

“They’re making the active decision year after year to prefer consumption spending over investment spending and that has consequences over time ... we’re determined to make sure that doesn’t happen.”

In 2022, after Hill-Lewis was elected mayor, the city introduced a budget rule stipulating that infrastructure spending must grow at least by inflation plus population growth each year.

Last year, the city broke a record for infrastructure investment with a budget of R6bn. This year it will grow to R11bn and then climb to R18bn in the year after that.

“That’s a three-fold increase in three years and we aim to sustain these high levels through the rest of this decade,” he says.

Though the city’s ageing public infrastructure is creaking in some high-density areas, Hill-Lewis takes satisfaction from the fact that in February the city recorded the lowest number of sewage spills in the past five years thanks to a concerted effort to replace sewerage pipes.

According to Nedbank’s 2023 Capital Expenditure Project Listing, 68% of the R101.6bn in new, major capex projects announced by general government over the past year were initiated by the City of Cape Town. They include R45bn for upgrading wastewater works, sewers and road infrastructure and R24bn across two renewable energy schemes to minimise load-shedding.

Other huge projects in the works include:

• The biggest bus rapid transit (BRT) project in the country. The failure of the state’s passenger rail network, overseen by the Passenger Rail Agency of South Africa, has resulted in 900,000 Western Cape rail commuters having to switch to the roads. To alleviate congestion, the city is spending R10bn to expand the MyCiTi BRT system to Khayelitsha and Mitchells Plain by 2026.

• The largest water reuse scheme in the world. Anticipating a permanent 40% reduction in annual rainfall, Cape Town aims to be water resilient against drought and potential national water infrastructure failures by 2030. It has mobilised private finance and will soon start the procurement phase of the 130Ml Faure water reuse plant. A 150Ml desalination plant is also in the early stages of preparation.

• The province, Cape Town and various municipalities are collectively budgeting just under R7bn for additional power generation over the next three years, which will enable R70bn of new private energy-related investment. In all, about 5,000MW of new power is already in the pipeline, 60% of which is being procured from the private sector. It will take 18-36 months to land but when it does it will dramatically reduce load-shedding across the province.

These plans underscore the region’s bullishness at a time when the rest of the country, including much of the private sector, is in retreat.

Winde’s strategic approach is similar to the mayor’s.

“You identify the risks and you mitigate them,” he says. “You understand the biggest blockages stopping you from achieving continuous growth and address them; you identify the strengths — like tourism and business process outsourcing [BPO] — and you put your foot on the gas.”

It comes down to “good, efficient management”, he says. This means getting basic service delivery right — providing energy and water and keeping the sewerage systems running. It also means management that’s open to innovation. This is where the Western Cape really stands out.

Take the example of how it converted the Cape Town International Convention Centre into an intermediate care Covid field hospital in just six weeks. According to a paper published in the African Journal of Primary Health Care & Family Medicine, the field hospital halved the duration of patients’ stay at acute-care hospitals, freeing up space for them to manage more critical cases.

This innovation inspired another recent success story — the province’s rapid school-building programme.

The Western Cape believes it can continue to motor ahead even as the rest of the country regresses, and is investing billions in creative solutions to ensure that it does

—  What it means:

One of the big pressure points caused by in-migration is in education. Though the province is experiencing a net influx of about 300,000 people every five years, according to Stats SA’s Midyear Population Estimates, its education budgets have fallen victim to the national fiscal consolidation drive.

Despite this, the province has built 25 new schools, 16 replacement schools and added 1,200 classrooms since 2022.

Thanks to innovative design, new building methods and materials, coupled with intensive time management, the province can now build a new 500-seater school on an existing school site in 60-70 days.

And, in the case of the new Lwandle Primary School in Somerset West, which has its own water and power sources, the province has cut the time taken to build a new greenfield school from 4½ years to two years.

Speed is ensured through the Rapid School Build war room, where the province and the city’s key planning people, including the MEC for education and the mayor, meet regularly to deal with snags and keep up the pressure to deliver.

The National Treasury has taken note of the province’s success and has awarded it R2.55bn extra over the next three years for school-building projects.

Why does the Western Cape create more jobs?

The Western Cape’s outperformance when it comes to creating jobs is notable, but what is even more remarkable is how badly Gauteng has performed.

After all, Gauteng is the country’s economic powerhouse, accounting for R33 of every R100 produced. Its economy is larger than the economies of KZN and the Western Cape combined, and it has been growing faster — at just under 2% in real terms on average annually over the past decade (2013-2022, excluding the Covid year of 2020) — than the Western Cape (at 1.8%) and the country as a whole (1.73%).

Yet Gauteng’s unemployment rate is 33.8% compared to the Western Cape’s 20.3%, reached in the fourth quarter of last year. The latter figure represented a 2.2 percentage point (pp) drop year on year, according to Stats SA’s latest Quarterly Labour Force Survey (QLFS), the biggest decrease of any province.

The historic explanation for the Western Cape’s low unemployment rate has been that its economy is dominated by the services sector and these firms have generally been growing the fastest and creating the most jobs. Gauteng is all about industrial manufacturing, a sector that has been in decline and haemorrhaging workers.

We’ve got a long way to go and a lot of work to do but jeepers, we’ve had a lot of success

—  Alan Winde

While this may have been true in the past, the composition of both economies is now almost identical. In 2022, the finance, real estate & business services sector was the largest industry in the Western Cape, according to Stats SA, contributing 30% to value added, followed by manufacturing (contributing 16%), and then trade (15%).

In Gauteng in 2022, the finance sector was also the largest, contributing 31%, followed by manufacturing (17%) and then trade (13%).

Despite this, the Western Cape and Limpopo have been the only provinces to have grown employment faster in their age 15-64 populations over the past decade, according to the QLFS.

Gauteng experienced a sharp 21% increase in its 15-64 population but only a 5% increase in employment over this period. The Western Cape also experienced a 21% increase in this population segment but responded by raising employment by 23%. 

The QLFS also shows that agricultural employment has grown much faster in the Western Cape than elsewhere over the past decade, as has informal sector employment, suggesting the province may have more vibrant township economies.

In addition, it’s the only province in which private household employment growth (mostly domestic workers) has been positive over the past decade, which presumably reflects the growth of middle- to upper-income groups.

Another relevant factor is that the Western Cape has been far more effective than other provinces in implementing the government’s expanded public works and other employment programmes, while Gauteng has been utterly dismal.

Other explanations for the strong jobs growth could lie in the fact that the province boasts good governance, a well-run city, and a consistent economic development and investment promotion framework that prioritises the needs of the private sector and aims to ease the cost of doing business.

These factors are behind the province’s emergence as South Africa’s green economy headquarters and Africa’s tech capital. Given the skills intensity of these two sectors, and of job creation generally in South Africa, it helps enormously that the Western Cape also has higher average education levels.

But the province is also managing to absorb large numbers of low-skilled, entry-level workers.

According to the provincial government, the unemployment rate among its most vulnerable population, African youth with less than secondary qualifications, dropped by 4pp between the fourth quarters of 2019 and 2023.

This may have something to do with the fact that it has one of the best call centre locations in the world and is the country’s leading tourism destination. These sectors have been booming and are good at mopping up large numbers of low-skilled workers.

In fact, the BPO sector is taking up so much office space in the city centre that it’s impossible to find 1,000m² to rent. In Mitchells Plain there are another 3,000 call centre seats and the number is growing rapidly.

“The main driver of Cape Town’s job stats isn’t financial services companies relocating from Sandton,” says Hill-Lewis, “it’s international BPO firms relocating here. And you only need a three-week training course and you’re on the job, earning a decent living.”

Winde says the reason for the province’s jobs-rich growth comes down to “good governance, forward-thinking government policies and a collaborative government-private sector ecosystem that enables opportunities for growth and jobs”.

Above all, the Western Cape government prides itself on being innovative, agile, responsive and pushing the boundaries of its constitutional limitations.

Winde cites, for example, the province’s Air Access strategy. It circumvents the national hub-and-spoke plan, which stipulates that aircraft must fly first into Joburg and then on to secondary cities, and instead set about securing four new air routes and three new airlines to fly directly into the Western Cape.

The pay-off is that the province received 215 direct flights a week this past summer season, upping Cape Town International Airport’s seat capacity by 25% to a record 1-million passengers. Allowing more flights to come in has enabled thousands more jobs, says Winde, who estimates that tourism injected nearly R2bn into the province’s economy over December alone.

“If we can fix the ports, visas and energy, can you imagine the jobs that would flow from that?” he asks. “We’ve got a long way to go and a lot of work to do but jeepers, we’ve had a lot of success.”

Of course, as welcome as the Western Cape’s standalone success is, even the best possible provincial development strategy would benefit from greater national co-operation, and everyone in South Africa would gain from broader national progress. After all, growth is not so much a competitive as a co-operative game.

This is why it is no exaggeration to say that South Africa’s divisive politics remains the biggest obstacle to economic progress. This makes the outcome of the May general election absolutely pivotal — as much for the Western Cape economy as for any other part of the country.

It appears that the Western Cape has already decoupled from the rest of the country’s stagnating property markets. House prices were up an average 6.18% in the province in the fourth quarter, compared with a measly 0.54% and 1.62% in Gauteng and KwaZulu-Natal, according to research and analytics group Lightstone.

The province’s retail, commercial and hospitality property sectors are also outperforming on key trading metrics. In fact, JSE-listed real estate investment trusts such as Growthpoint, Redefine and Hyprop are starting to run out of office, retail and industrial space in Cape Town and surrounds as more corporates, retailers and manufacturers join the relocation wave.

Property investors and developers are responding by pouring billions of rand into new projects. Growthpoint and the Government Employees Pension Fund, which co-own the V&A Waterfront, plan to invest about R20bn to double the precinct’s footprint over the next 10 to 15 years.

Estienne de Klerk, head of Growthpoint’s South African business, says the V&A is virtually fully let thanks to a “phenomenal” post-pandemic rebound in visitor numbers.

In December, a record 3-million people streamed through the V&A, up 25% year on year, while retail sales surged by 16% to reach a record monthly high of R1.2bn. The occupancy at the precinct’s 12 hotels touched 90% over the same period.

In Cape Town’s city centre, 22 new building projects worth an estimated R3.5bn are under way or in the pipeline, most of which are high-rise apartment blocks. That will bring at least another 1,500 apartments to the market, on top of the 2,500 units already completed since mid-2021, according to the Cape Town Central City Improvement District (CCID).

Notable developments include Harbour Arch on the Foreshore, One Thibault Square, a redevelopment of the old BP Centre near St George’s Mall, The Rubik, The Barracks, 84 Harrington and The Fynbos, Africa’s first biophilic building. Some developments are already sold out.

CCID chair Rob Kane says inner-city living has been underpinned by a steady return of office workers, digital nomads and international tourists.

“The city continues to position itself as a vibrant live, work, play and shopping hub,” he adds. “More restaurants are staying open at night, while retailers, including all major grocers, are also back.”

—  Location, location, location

It all comes down to good governance

Fifteen of the top 20 municipalities in South Africa are in the Western Cape, according to Gauteng-based research and advocacy NGO Good Governance Africa (GGA)

GGA’s 2024 report also names Cape Town as the best-performing metro in the country, cementing the Western Cape’s reputation as a bastion of good governance and service delivery.

According to the report, the best three local municipalities in South Africa are all in the province: Swartland (best small town) tops the list, followed by Drakenstein (best secondary city), with Saldanha (best large town) in third place.

The top four district municipalities (in the category of those without their own water service authority) are also all in the Western Cape: Cape Winelands, West Coast, Garden Route and Overberg.

The GGA results echo those of governance ratings agency Ratings Afrika and the auditor-general, who recently awarded clean audits to 27 out of 30 municipalities in the province.

Ratings Afrika has been showing for years that, with the exception of the Western Cape, the financial sustainability of most of South Africa’s municipalities, and their service delivery capacity, are deteriorating rapidly because of “gross financial mismanagement and unsound governance”.

The agency’s annual reports have flagged how inadequate spending on repairs and maintenance is causing infrastructure to crumble. This, it says, together with a lack of service delivery, is having a disastrous effect on households’ quality of life and the economic activity of resident businesses. In sharp contrast, the Western Cape has improved on its GGA performance in 2021, when 13 of the top 20 municipalities in the country were in the province.

“This is a clear indication that the Western Cape government is doing something right,” says Anton Bredell, the provincial minister of local government, environmental affairs & development planning. “Good financial management is cumbersome, and hard work, but there is a direct relationship between audit outcomes as measured by the auditor-general and service delivery outcomes, which is the category with the highest weight in the GGA performance calculations.”

The GGA report scores municipalities according to five categories: administration and governance; leadership and management; planning, monitoring and evaluation; service delivery; and economic development for metros.