Despite deteriorating international financial market conditions, the Cape Regional Chamber of Commerce and Industry reports that the Western Cape regional economy is not expected to plunge into a recession in the short term and that the overall outlook for the region's economic growth remains promising.
"There is no reason to doubt that the provincial economy will continue to grow steadily in the medium-to-long term. Its geographical location means that the province is well positioned to trade internationally and interregionally. Its education system develops skilled, entrepreneurial and dynamic people that drive growth. As one of the most desirable places in the world to live talented people with capital are attracted to the area," says chamber president Jeremy Wiley.
While the region's economy is solid, a number of negative factors are nevertheless, hampering accelerated growth. The Western Cape treasury department has reported that the region's real gross domestic product growth is expected to slow down sharply to between 1% and 2 % pace in 2008/9 compared to an estimated 5,4 % in 2007/8. The Western Cape generates about 15% towards the national GDP.
The Western Cape treasury department has reported that although the Western Cape was less affected by the electricity supply crisis at the end of 2007 and early 2008, the province's growth could weaken in the event of an intensifying energy crisis, as manufacturing, commercial and to a lesser extent the construction sectors are particularly vulnerable to the effect of unplanned power outages and power rationing.
Wiley adds that climate change and the anticipated further dessication of the western side of the Western Cape and its effects on agriculture, will also pose a threat to the region's economic growth, as will the continuous influx of desperate people from all over Southern Africa into the region.
Wiley notes, "This province cannot absorb the numbers of migrants that stream in without a larger allocation from the national fiscus with which to provide shelter, education and jobs. The province is already overpopulated, given its limited fresh water resources and stretched municipal services infrastructure."
The Chamber believes that the region's slowdown over the short term will be moderate as the province is fortunate that it is not as exposed to commodities such as minerals, and luxury goods exports such as motor vehicle manufacturing. Wiley adds that as a globally competitive fruit and wine producer, the province is affected to some extent but cushioned by the relatively weak rand.
Wiley states, "As a globally attractive leisure and business tourism destination and with the 2010 FIFA World Cup spotlight firmly on selling South Africa as a destination, the Western Cape performs better than the rest of the country and most other destinations when it comes to attracting increasing numbers of hard currency visitors."
The Chamber notes that the main industries of the Western Cape are the agri-businesses including farming and food processing, a wide range of engineering and marine service industries, design, technology and information technology sectors, as well as the oil and gas exploration industries. The provincial treasury department lists financial intermediary, insurance, real estate and business services and construction sectors, as the region's main economic sectors.
The financial, insurance and business services sectors dominate the Western Cape economy and are influenced by the country's economic outlook. As a result, the department has predicted that performance in these sectors, as well as the construction sector, are projected to slow down in 2009, These sectors are expected to start recovering in 2010, as a result of a improving interest rates and inflation outlook.
The Chamber adds that the clothing and textile and fishing industries, which contributed substantially to the Western Cape's economy for decades, have suffered severely in the past ten years owing to the industry's uncompetitiveness in the face of growing international competition, especially from Asia and the Far East. The lack of control of national waters and the pillaging of fish resources have depleted the region's fisheries.
Nevertheless, there are a number of projects in the region that have potential for sustained economic growth. These include the development and downstream exploitation of the West Coast oil and gas fields, the expansion of the port of Saldanha and its associated industrial development and within the Cape Town CBD the Somerset Hospital and Culembourg redevelopment precincts. The proposed additional development of wind farms along the West Coast also offer exciting prospects for the generation of clean electrical energy.
Wiley points out, "These projects, coupled with the amount of property development and public infrastructure spend already taking place in and around Cape Town, signal that foreign and local private investment for larger projects has not dropped off significantly. It is however a fact that local and international financial institutions have little appetite for risk at this time and the scarcity of development funds will inevitably slow down some new developments in the short term."
Wiley further adds that while other governments create debt as they bale out banks and failed industries South Africa is investing in infrastructure that will serve the country and the entire sub-continent well in the future. The right provincial growth and development strategies have been designed and now need to be implemented aggressively by government in partnership with the private sector.
"The Western Cape is the logical international gateway into South and Southern Africa, with Cape Town offering unparalleled business access and opportunity which will benefit the entire region," concludes Wiley