This is a long-read. It is peppered with embedded additional research, resources and tools. It is structured as follows:
- Principles for a new economy (inclusion, fairness, resilience, sustainability)
- Stabilise the fundamentals (key assets and infrastructure)
- Focus on expanding the product jungle (diversify with more complex know-how)
- Address binding constraints to inclusive growth (financial, geographic and social)
- Acknowledge spatial differences (different plans for different starter conditions)
- It takes the whole of society (the economy is an ecosystem)
As with all my writing, its just one point of view and not necessarily my final position.
Principles for a new economy
The last City of Cape Town Economic Growth Strategy was written in 2013. Since this strategy was adopted, the institution has been affected by an election, a restructuring, a change in Mayor, and another restructuring.
Cape Town as a city has experienced a lot of changes too — the drought brought us together and also burst any sense of security the upper-middle class had left, trust between some role players was strengthened, and others weakened.
We’ve seen economic shifts such as rapid growth in property prices, increased air connectivity and job-inclusive growth in the tourism, tech, finance and BPO, trade and hotel sectors. (The City of Cape Town’s quarterly Economic Performance Indicators for Cape Town reports are a handy resource).
The world is also changing. Climate change, urbanisation, technology, polarising populism and migration are all key drivers affecting how cities work, and who they work for.
A new economic strategy should anticipate that uncertainty is a key feature of the world, and our city. It would set out some principles, and be guided by these rather than a perfect plan. Potential principles could be:
- Inclusion
Cape Town is one of the worlds most unequal cities. It is not enough to simply increase inflows into the economy. We need to increase circulation of money within the local economy, and get existing and new money to break through historically entrenched blocks in these flows.
There are a number of ways in which economic development can be made more inclusive.
One way to think of it is through direct inclusion in growth. An example of this would be focusing on increasing production within labour intensive sectors. Within this, there can still be inequality in the returns — with many low-skilled workers earning less than a few high-skilled workers — but the number of people directly participating in growth sectors increases.
Another way to think of it would be indirect inclusion in the economy, which would be a set of re-distributive factors. This is a form of compensation for structural exclusion. Social grants and subsidized services are examples of this that ensure that money (and/or benefits) reach beyond structural blocks to inclusion. This is not merely a form of social protection, but also a direct injection into local economies, and often into informal businesses.
South Africa has an over-committed state, and, while current flows within the economy rely on indirect inclusion; effort must be placed in creating pathways for direct inclusion.
2. Fairness
Related to issues of inequality and structural exclusion is the need for more fairness in the economic system. “Cape Town is a tale of two cities” has become almost cliche, but for those on the ground it remains a hard truth. Some businesses are received at luxurious hotels for breakfast banquets with political leaders and senior officials, while others experience the face of the state only through front-line bureaucrats and law enforcement. Some people have access to opportunities that others do not.
Spotlight on good practice: Some work has been done to reduce red tape affecting township property developers through a localised one-stop-shop land use office with a customer-centred culture in Khayelitsha.
Fairness as a principle will inform, for example, the choices we make when:
- Selecting a chain or a locally owned business as an anchor tenant in a new development
- Supporting the rights to dignity and property of informal businesses
- Working with national counterparts to address anti-competitive behaviours and break through monopolies
- How government procures goods and services
- How we prioritise areas and sectors to be “shut off” in times of crisis (e.g. water crisis or loadshedding. Often it is the most visible sectors that are the easiest to target, but possible also the ones with the most to lose. I got a little angry about this during the height of the water crisis.)
3. Resilience
A resilient economy is one that is adaptable to changes in the broader environment. At the same time, Cape Town needs an economy that contributes to its overall resilience.
The former would be an economy that has as many “letters on the scrabble board” as possible. In other words, a sophisticated economy with diverse sectors, products and services and a diverse and complex set of know-how. This reduces over-dependence on a single sector, market or input source; and also increases the likelihood of the economy to “pivot” if needed.
The latter is an economy that yields high social returns, is inclusive, and sustainable (the next principle).
Cape Town’s strong participation in 100 Resilient Cities and C40 presents opportunities:
You can read the City’s Resilience Assessment here.
4. Sustainability
There’s not much point building an economy that embeds the root causes of shocks and stressors to the same economy. Globally, shifts are towards economies that are circular, green and inclusive of ecosystem services.
Luckily, we have a great starting point for this, with organisations like GreenCape, Green Building Counsel South Africa, Sustainable Energy Africa, Centre for Environmental Rights, and others focusing on the food-waste-energy-water-biodiversity aspects of our economic transitions. Similarly, both the Provincial government and local City government have Green Economy officers.
So how do we get there? I’ve proposed some ideas below.
Stabilise the fundamentals
Key economic assets require protection and support to enhance their role. In Cape Town, this would include examples such as the Cape Town International Airport and its AirAccess and related expansion plans, the Cape Town International Convention Centre (and others in the convention cluster), Table Mountain National Park, the V&Waterfront, the Cape Town Port, Philippi Horticultural Area And our regional agricultural links, and industrial and commercial nodes. These require good management, safety and security, and stable services.
Unfortunately, a lot of what we have is vulnerable to failure.
Certain infrastructure is critical to the economy: rail, roads, water, energy, broadband. Cape Town currently has a rail crisis, our roads are congested, we’ve just come out of a “shocking” drought, we’re subject to national loadshedding and have fumbled our way through finding the balance between incentivising off-grid efforts over charging for them, and exist in a country with very high data costs.
An economic strategy that focuses only on skills and investment promotion will fail if these fundamental economic assets are not programmatically protected from failure, and then enhanced.
Some of these are being addressed. Not only the content of these plans, but how to monitor their implementation and impact, how to predict and plan for changes that impact on your business, and how to get pro-actively involved in solutions, need to be a core part of Cape Town’s engagement.
An honest and mobilising city brand that talks about our coinciding crises rather than ignores them is needed.
In addition to stabilising the fundamentals, we might want to look out for those “hippos in the desert” (a metaphor which took on new meaning during the Cape Town drought). What this means is looking for examples of positive deviance — businesses and sources of income that exist despite significant constraints in the environment. These businesses tell us about sectors that can survive in constrained conditions, and ones that might be more resilient in an uncertain future. There are lots of examples in Cape Town’s economy: Philippi Village and high-tech BPO centres in Delft prove that security is not always a binding constraint to investment in township areas. Similarly, we have plenty of “camels in the desert” (businesses that are thriving because their business is less reliant on a particular form of infrastructure) — the finance sector is relatively immune to many of these shocks, and informal businesses prove that a lack of permanent infrastructure (while it would certainly help) can be overcome. Some of these only exist due to the business being willing to pay a price to overcome state failure (“shadow prices”), in which case analysts need to understand the price businesses are willing to pay before reducing or ceasing production. This is a signal of potential economic return on any state intervention to remove that constraint.
Focus on expanding the product jungle
One approach to economic development is whats known as “economic complexity mapping”. Essentially, this approach looks to what goods and services we currently have the capabilities to deliver, and what goods and services are adjacent to these in terms of the required infrastructure, resources and know-how.
Ideally, an economic strategy identifies pathways from more “simple” goods and services, to more “complex” ones. The more complex our offerings, the greater the number of products and services we can easily diversify into; and the higher the value of the goods and services (great for improving social returns — be they direct or redistributive).
We then look at what the constraints affecting business diversification into those adjacent spaces are, and plan to address those constraints.
So what’s in Cape Town’s “product and service jungle”? This requires more detailed analysis than I have time for, but its a good place to start for any analysts working on the issue. Luckily, Harvard has already done the country level assessment (and do conduct region and city level analysis with partner cities…)
What we do know without much detailed analysis is that Cape Town has a unique opportunity to bring highly-complex sets of know-how from our various advanced manufacturing, technology, business services and financial sectors into closer proximity with one another. We are already seeing this happen with growth of the ICT4Health, FinTech, AgriTech and eCommerce sectors, for example.
A key element of this approach is understanding the importance of “know-how”. As Ricardo Hausmann says, “brains move more easily than know-how”.
The next step from an inclusion perspective would be to bring these pools of know-how into closer proximity with bottom-up know-how. There are a lot of hidden business, manufacturing and design skills that remain ignored in economic policy because they sit in peoples homes, in the informal economy, or in areas statisticians and analysts ignore. Examples of projects here would be Digi-Stokvels and Discover iKasi.
Address binding constraints to inclusive growth
If inclusion requires increasing productive work, then inclusion requires investment. Too often, Cape Town gets stuck on attracting outside investment, and talking about growth as an outcome in and of itself. By being clearer about where the opportunities for increasing investment in productive work are, we might become more targeted in our approach. Existing businesses formalising, expanding or adding a new product or service are all forms of investment that can create more opportunities to access money.
Cape Town faces a number of constraints to all of these forms of investment. Some of these are:
- low social returns: people are geographically far from economic opportunities, and are poorly skilled. Both of these factors limit people’s ability to plug into the economy. Sectors that rely on low-skilled labour have to overcome challenges such as labour transport, as well as support to staff members who often face multiple problems at home (drug abuse in the home or community, domestic violence, family members involved in crime, flooding or fires at home all impact on individuals work lives). Cape Town cannot have new, inclusive economic pathways without thoroughly resourcing programmes to address these complex social issues.
- micro risks: there is currently low levels of trust in the predictability of costs such as property rates and utilities fees (connection and consumption). This affects business predictability and therefor willingness to invest.
- macro risks: South Africa’s credit rating, corruption issues and uncertain property rights are examples of constraints. Recently established commissions and processes on all fronts require rigorous engagement and support from all levels. We cannot allow politics to get in the way of collaborating on turning these factors around.
- market failures: for some businesses, coordination failures are an issue. In particular, smaller businesses based outside of economic clusters lack access to information about new markets and how to access them. (The EDP has a programme to support township based makers with export opportunities generated through increased AirAccess).
- finance: even for businesses with access to formal financial service providers, the cost of finance is high. For those excluded from these services, its even higher.
Acknowledge spatial difference
Cape Town’s design as an apartheid city cannot be ignored in economic strategies.
The City’s Incentive Policy, Targeted Improvement Districts, crime and social interventions, and infrastructural investments need to be spatially aligned and backed up with where and how investment is directed, facilitated and approved. Bringing different forms of know-how into closer proximity, and bringing work closer to homes/homes closer to work requires a strong land use management system. If a constraint to investing in areas that need investment the most relates to crime or freight access or insufficient electrification, the City must prioritise addressing that constraint; lest the cost of transport be permanently transferred to either the City or the worker.
A place-based approach will see different sets of interventions to create productive places based on the different starter-conditions of each area.
Luckily there are existing tools and frameworks to guide this.
For existing formal economic nodes, there is ECAMP — a mapping and assessment tool that tells practitioners what the constraints to growth are of a particular commercial or industrial node within Cape Town.
For townships, the EDP and HSRC have recently released a framing report and complementary toolkit.
There’s also this great toolkit on enabling the informal economy, produced by South African Cities Network.
It takes the whole of society
With the above understanding in mind, it is clear that creating new economic pathways for Cape Town’s residents will take more than just the City of Cape Town.
In some aspects, business or citizens will lead, requiring the support and influence of the state. In other aspects — whether its addressing infrastructure failures, or the state will lead. In all aspects, more than one partner is needed.
In this light, a new economic strategy that takes on board some of the above principles and ideas, as well as others, would be created in consultation with those most directly impacted by it, and those whom have the most to contribute to addressing constraints to inclusive growth. These might include:
- Various business chambers and associations, including informal and township-based associations as part of mapping hippos, camels, products, services and know-how and determining the adjacent possibilities for diversifying and increasing complexity
- Education and skills sector, for building the pipeline and increasing equality within returns (creating a greater spectrum of earners, as opposed to large numbers of low-earning)
- Planners, regulators and implementers
- The finance and tech sectors, engineering sectors, safety and social development sectors in relation to key constraints
- Existing sector SPVs and agencies (to share insights, data and knowledge and to connect and convene — not to merely bid for their budgets)
- Government supply chain units: one of the most direct ways in which the state can stimulate economic transitions is in how it spends its money. Often this is reduced to localisation benefits. While these are important, there are many additional objectives that can be achieved. For example, when the WCG procured energy-saving light bulbs for all its buildings instead of new ones, a factory could be opened that now distributes to many of us via South African retailers.
- Government land and housing role players: how we allocate, subdivide and fund government housing programmes, or release land to the commercial market, has a direct implication for the economic benefit of those transactions and, in particular, the construction and land-lording opportunities. While subdivisions and supply-side grants are more transaction intensive, these are a way to directly remove barriers to entry for new developers and transform the property sector.
- Neutral academic role players who can bring rigor and facts to mitigate the risk of lowest-common-denominator issues and/or sector bidding taking place.
Who else should be involved, and what power, influence, resources or know-how do they bring?
