Provincial Economic Review and Outlook

Minister Alan Winde

Western Cape Minister of Finance, Economic Development & Tourism

2012 Provincial Economic Review & Outlook

The following speech was delivered in the Western Cape Provincial Legislature on the tabling of the Provincial Economic Review and Outlook (PERO). A full version of the PERO document is available here: http://www.westerncape.gov.za/text/2012/9/pero-2012.pdf

Honourable Premier, Honourable Speaker, Honourable Members of the Provincial Cabinet, The Honourable Leader of the Opposition, Honourable Members of the Provincial Legislature, Citizens of the Western Cape,

Thank you for affording me the opportunity to address you today on the current state and future prospects of the Western Cape economy.

This week, South Africans commemorated Heritage Day, a celebration of our varied cultural heritage and the diversity of their beliefs and traditions. South Africa is a multicultural society, where neighbours and friends have differing traditions and beliefs. Due largely to our Apartheid past, we are also a society in which a vast chasm exists between those who have access to resources and those who do not – the “insiders” and “outsiders” of our economy.

Speaker, today I present to you the Western Cape Provincial Economic Review and Outlook for 2012 (PERO). This document provides us with a detailed picture of the challenges and opportunities faced by our Province and its people.

It will form the backbone of our budget deliberations in the months to come.

PERO 2012 explores four different areas – an overview of our economic performance, the development of Western Cape economic sectors; labour market dynamics and the socio-economic situation in our Province.

We believe that proper education is the turnstile through which we must all pass to change our economic fortunes and have placed special emphasis on investigating this area.

Economic Outlook: Speaker, developments within the Western Cape economy must be considered within the context of both global and national economic events.

The global economic downturn which began in 2008 is likely to continue. The moderation in global economic growth registered during 2011 and the first quarter of 2012 is expected to continue for the duration of the year and overall global growth for 2012 likely to be lower than that recorded during 2011. This trend is reflected in both advanced and emerging economies across the world.

In line with the global economy, South African economic growth also slowed during the first quarter of 2012, largely due to slower growth in household consumption expenditure. While the economy did accelerate during the second quarter, this was exclusively the result of a rebound in the mining and quarrying sector, and particularly in platinum. Given recent unrest on the mining fields this sector will in all likelihood constrain national economic growth going forward.

The outlook for the Western Cape is somewhat more positive. As was the case in 2011, our economy is expected to continue growing faster than the national economy. However, the pace of growth in 2012 is forecast to ease, in line with the global and national outlook.

Overall, economic growth in the Western Cape is forecast to average 3.9 per cent between 2012 and 2017. This will be supported by growth in finance, real estate and business services, manufacturing, retail and wholesale trade, catering and accommodation sectors. From an export perspective, our economy remains more exposed to slower growth in Europe than the rest of the country.

Western Cape Sectors: At over 70 per cent, the services sector now dominates the Western Cape economy.

Finance, insurance, real estate, business services, retail, wholesale, catering and accommodation, transport and communication sectors have shown rapid growth since 2000. Speaker, the services sector is projected to lead the growth charge, with real GDPR annual growth of 4.1 per cent. Employment growth is projected at 2.1 per cent.

Given the deep technological changes in the communications industry, this sector is again projected to be the fastest growing sub-sector in the Province (with real value added growth forecast at 8.5 per cent per annum).

Other services sub-sectors expected to continue doing well are business services (5.2 per cent), catering & accommodation (4.4 per cent) and the finance & insurance sector (4.2 per cent).

Despite off-setting the number of jobs lost in low or negative growth sectors, the skills intensity of these jobs does not match the semi- and unskilled nature of the labour supply. However, exciting opportunities are opening up in the oil & gas sector and the growth achievements and initiatives in the Business Process outsourcing (BPO) and Information and Communication Technology (ICT) sectors are commendable.

Furthermore, the positive outlook for the tourism industry remains encouraging.

An expansion of export production remains an important growth engine for the Western Cape economy. The export of Western Cape goods has grown from R25.1 billion in 2001 to R54.7 billion in 2011, an annual compound growth rate of 9.3 per cent, faster than that of South Africa which is estimated at 2 per cent per annum between 2002 and 2011. Our most dominant trading partner is the European Union (EU), absorbing 37.4 per cent of the Western Cape’s goods exports in 2011. Our second most important trading partners are the SADC countries, which absorb 14 per cent of Western Cape goods exports. The key destinations are Angola, Mozambique, Zambia and Zimbabwe, which accounted for 78 per cent of the Western Cape’s exports to SADC in 2011. The Western Cape ships a comparatively larger share of its exports to African countries, namely one quarter compared to only 17.5 per cent in the case of South Africa. SADC remains the more important destination for Western Cape exports and we are pleased that growth in exports to these countries has accelerated in recent years.

While the Western Cape’s dominant export markets remain the EU and SADC, we are penetrating non-traditional markets such as the Commonwealth of Independent States, other Asia, the ASEAN bloc and BRIC economies on an increasing scale.

Labour Markets: Speaker, the labour force participation rate in the Western Cape is significantly higher than the South African average. Close to seven out of ten working age adults are active in the provincial narrow labour force, compared with just over five nationally.

Labour force participation amongst 15 to 24 year olds is 18 percentage points higher in the Province than in South Africa.

Formal employment is substantially more common in the Western Cape than is the case nationally and accounts for 76 per cent of all jobs.

In addition, whereas nationally, discouraged workseekers constitute 12 per cent of the expanded labour force, in the Western Cape this category constitutes a mere one per cent.

Speaker, narrow unemployment in South Africa has been growing rapidly. The number of unemployed is at 4.5 million. In the Western Cape narrow unemployment has increased by more than 150 000 to 546 000 during the first quarter of 2012.

This is a challenge that the DA-led Western Cape Government is well aware of.

In collaboration with a variety of stakeholders from businesses, NGOs, academia and others we are putting the majority of our strategic resources behind this.

As far as institutional and policy development is concerned a major development in 2012 has been the launching of the Economic Development Partnership (EDP). The EDP is not a government agency but a cross-sector partnership, incorporated as a non-profit company, aimed at collaboration amongst diverse organisations to address the problems of persistent poverty, inequality and unemployment. The guiding principle is to lead, coordinate and drive the Western Cape economic delivery system to higher levels of inclusive growth.

The goal of job-creating growth has been incorporated in Future Cape, a strategy development process aimed at scoping a shared long term economic vision and plan with Western Cape leaders from all sectors, seeking buy-in towards achieving common goals with measurable objectives.

Together, we can drive unemployment down.

Socio-Economic Conditions: Speaker, according to the Statistics South Africa (StatsSA) 2011 mid-year population estimates, there are 5.29 million people living in the Western Cape.

At a conservative estimate, 206 493 people migrated to the Western Cape between 2006 and 2011, of which 104 215 were from the Eastern Cape and 48 951 were from Gauteng. The flow from the Eastern Cape to the Western Cape is one of the largest migration streams in the country.

It is no wonder that the rest of South Africans wants to move to the Western Cape because compared to the rest of the country, generally, socio-economic conditions for those residents in our Province are more favourable.

The average income per person of the Western Cape is R42 155, slightly more than that of Gauteng and far ahead of the national average of just below R25 000.

Income inequality is lower in the Western Cape than in Gauteng, with the Gini Coefficient for the Western Cape at a high 0.63, below Gauteng’s 0.67 and South Africa’s 0.68.

Economic activity has developed to higher levels in the Western Cape than in most other provinces, and service delivery is better in a number of fields.

Indeed, largely due to the efforts of the DA government in the City of Cape Town and in the Western Cape Government, over 84 per cent of households now have access to basic services, including water, sanitation, refuse removal and electricity.

We are particularly proud of our service delivery achievements in the education sphere – the Western Cape offers the best quality education in South Africa, by far.

This can be deduced best from provincial performance against the national norm in a large number of educational assessments, both national and international. The Western Cape’s performance lies between 1.5 and 2 standard deviations above the South African average, and well above that of any other province in every single one of these tests.

Speaker, due to the growth in unemployment nationally in the last number of years, a negative effect on the general welfare of Western Cape society has been experienced.

Added to that there is the fact that the Western Cape experiences, perhaps more acutely than most other provinces, particular types of social ills, such as interpersonal violence, abuse of women and children, and abuse of alcohol and drugs.

Speaker, while a growing economy can do much to improve the living standards of the population, some of these problems require more direct efforts.

Such efforts are continuing, but it appears that success is far more difficult to achieve in these fields than is often acknowledged.

Conclusion: Speaker, the 2012 PERO is an honest assessment of where we are as a government. It shows that while we have made some inroads towards creating a province that delivers opportunity for all, we still have some way to go.

Heritage Day is also the day on which we recognise the role that we all have to play in order to make Nelson Mandela’s dream of a Rainbow Nation a reality. We believe that we can make our Province better, together.

This document will not only be presented for debate and then be put away to gather dust, it will form the basis of the 2013 Medium Term Budget Policy Statement and the 2013 Annual Budget.

Speaker, I hereby table the 2012 Provincial Economic Review and Outlook for deliberation by this House.

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