Cry, the beloved Cape Town economy

I have lived in the two most economically important cities in South Africa: Johannesburg and Cape Town.

The coffee is different. The weekend activities are different. The night life is incredibly different. Like all cities, they both offer positives and negatives. Nowhere is perfect.

Most of all though, the economies are completely different. One is a banking, corporate and industrial powerhouse, whereas the other is an artisanal ecosystem of creativity and technology.

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Before I carry on, I want to confirm that Cape Town is where I now live. I’m writing this piece out of concern primarily for the city I call home. Although I believe Joburg is at least slightly better off under these circumstances for reasons I’ll set out below, I’m equally not suggesting that people in Joburg aren’t suffering.

If you live in Joburg and it bothers you that I’m writing about Cape Town, you’re welcome to write something about Joburg. If it’s good, I’ll even share it. Genuinely.

I’m also focusing on the plight of the middle-class here. These are the people creating jobs and paying the taxes that support those who cannot work. The economy grows or shrinks in this LSM (living standards measure) group. They are the ultimate link between capital and job creation.

The middle-class is the group I understand best and therefore feel qualified to write about. It’s not as complex as the fascinating and vibrant informal economy in this country. If you want to learn more about that, I highly recommend that you check out GG Alcock and his excellent writings on the subject.

The City of Gold

Joburg is the old-school mining capital of the country. Its history is rich and so are the descendants of the Rand Lords who made their fortunes during the resources boom in this country. These days, the corporate ladder beckons for the graduates of Wits University, UJ and the like.

The ANC’s primary success story, relative economic transformation, is most visible in Joburg. Corporate offices are reasonably representative of overall demographics and there is a constant steam of talent of all races coming through the system. There is still much to be done, but Joburg feels like the most economically transformed city in the country.

That’s a beautiful thing.

If you want a high-flying career in JSE-listed companies and especially in banking, law or consulting, then Joburg is the natural choice. There are a few industries that call Cape Town their home (like asset management and retail), but on average the corporate action is in Joburg.

The corporate dominance in Joburg means that many middle-class people can get by with climbing the corporate ladder. They don’t need to have an entrepreneurial bone in their body, as a strong university performance can all but guarantee a degree of success. There’s nothing wrong with that at all; it’s just an observation.

Don’t get me wrong either – there are great entrepreneurs in Joburg. Those who follow the entrepreneurial route in that city are particularly strong, as they have turned their backs on the more stable corporate route.

I’m grateful to have started my career in that city.

The City of Beauty

Cape Town has really come into its own in recent years, particularly as  many Joburgers (and families from other major cities) moved to Cape Town in search of better quality of life. The property market outperformed the rest of the country by miles and jobs were created left and right.

I am one of the “semi-graters” who couldn’t handle Joburg’s crime any longer, so I moved to Cape Town as a strong alternative to emigrating. Goodness knows we have crime in Cape Town too, but it’s a safer place to live in the ‘burbs than Joburg is.

There is no debate that Cape Town is the most beautiful city in the country. In fact, it’s one of the most beautiful cities in the world, confirmed by consistent awards as a top tourist destination.

Cape Town does struggle with a housing crisis, as the lowest income communities live far away from any source of income and therefore bear a terrible burden of transport costs. It’s a difficult problem to solve, but one that must be solved as the country’s democracy continues to mature.

The corporate scene in Cape Town is a fraction of what it is in Joburg. There are only two industries represented at any scale in corporate Cape Town: asset management and retail. The rest of the economy is primarily built around tourism, agriculture, property, events and tech.

The upper middle-class in the Mother City is far more entrepreneurial on average than it is in Joburg. R1m+ corporate salary jobs are few and far between in the city. This forces people to think more creatively if they want to create wealth.

Cape Town’s runaway success in several industries is also its Achilles’ heel. The dependencies on certain industries are clear. If you want to read about it in detail, immerse yourself in the excellent strategic reports written by Wesgro.

Cape Town depends on just a handful of industries and COVID-19 is smashing them

I firmly believe that lockdown is hurting Cape Town more than Joburg. I can’t prove it, but then government can’t disprove it, as Ebrahim Patel confirmed that government don’t even have a proper view on the economic impact of their own decisions.

Intuitively though, Cape Town is bleeding:

  • Our tourism industry is dead, taking the numerous hotels and Air BnB properties (and therefore their values) along with it
  • The events industry can basically write off 2020, with huge downstream impact on thousands of families
  • Our economy of entrepreneurs is being crushed by lockdown, a significant % of whom don’t qualify for relief from government (especially in the tourism sector) due to the stubborn application of B-BBEE requirements to SMMEs in dire need of help
  • Restaurants are barely surviving despite being in a city of foodies – we’ve already seen iconic venues closing for good
  • The wine industry was crippled by a nonsensical ban on exports
  • Overall demand for property (and affordability) has dropped

Don’t get me wrong, Joburgers are feeling it too. I’m not for one second suggesting that one city is flourishing at the expense of the other.

However, the reality is that most corporate jobs in South Africa are relatively secure for the time being, whereas most entrepreneurs are not. That immediately puts Joburg at a relative advantage to Cape Town.

This is especially true in sectors that are the backbone of Cape Town, like tourism.

Government policies are making it worse

It’s no secret that the ANC doesn’t hold Cape Town deep in its heart. As the stronghold of the DA, it’s a thorn in the ANC’s side. The biggest annoyance for them is that it’s a lucrative thorn, contributing a meaningful chunk of tax revenue.

In particular, the tourism market of the entire country depends hugely on Cape Town. Tourism is estimated to contribute over 8% to South African GDP, directly and indirectly.

South Africa offers numerous attractions for international tourists, not least of all the likes of the Kruger Park, but Cape Town is core to that offer. We have a successful tourism industry because we offer so many great destinations in a single country. If Cape Town’s tourism industry takes a significant knock, the whole country suffers economically.

Despite this, government is using this as a golden opportunity to crush tourism businesses that don’t meet B-BBEE requirements. That’s perhaps fair for big companies, but what about SMMEs?

Is this really the time to push a political agenda, when South Africa’s tax base is crumbling?

The worst part is the see-through impact. SMMEs might not meet B-BBEE requirements on an ownership level, but they create jobs for all South Africans. These are the jobs at risk.

The government’s application of B-BBEE criteria in tourism support is being tested in court, but B-BBEE is enshrined in law, so I doubt it can be found unlawful. Poor judgment and a lack of appreciation for economic context isn’t unlawful. It’s just stupid.

Moving away from tourism for a moment, what about the inexplicable ban on wine exports? We were the only wine-producing country in the world to impose such a stupid rule. This is a core industry in Cape Town, providing thousands of jobs to people from all walks of life.

Economic suicide?

The initial lockdown steps were met with an outpouring of public support, but then it got weirder and more draconian by the day. Civil disobedience is starting to happen on a grand scale. It’s sad to watch.

We are now at a stage where people worldwide are scratching their heads at what we are doing.

The words “economic suicide” get used a lot.

We can only speculate whether there may come a point where the public simply stops caring, forcing government to either arrest all its citizens or change its approach. We are a country with a protest culture, after all. Civil unrest isn’t a new concept.

Please, just let the craziness stop. We need to save lives, we need to practice social distancing, but we don’t need to destroy the economy and lose many more lives to poverty as a result.

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