Cape Town as a Global African Basecamp

Cape Town has recently been shortlisted to become the next World Design Capital in 2014, possibly a sign that Cape Town is recognized globally as a world class business city.  And in May a record number of business and government leaders from Africa and the world convened in Cape Town for the World Economic Forum (WEF). Much like the Mining Indaba, Design Indaba and other major conferences, the WEF created an excellent opportunity for Cape Town not only to showcase itself as a desirable business destination, but also to establish itself as a viable gateway for business in Africa.

The theme of this year’s WEF was “From Vision to Action, Africa’s Next Chapter”.  Similarly Cape Town’s business leadership and other stakeholders have a vision for Cape Town – “Africa’s Global City, a city of Inspiration and Innovation” – a part of Accelerate Cape Town’s Vision 2030.  It is now time for Cape Town to also turn its vision into action. We have a real role to play in Africa’s economic growth.

The WEF’s record turnout was partly owed to the enormous increase in interest in “the African growth story”.  With the end of the Cold War, the flow of guns and money that propped up civil wars across Africa reduced significantly and democracy and growth friendly policies began to take hold across the continent.  More African countries are moving towards political stability and their resources are creating opportunities for infrastructure development and the removal of trade barriers.  It is encouraging to see the implementation of prudent macroeconomic policies in places like Ghana, for example, a recent African success story.

The Economist recently  examined how it had in 2000 labeled Africa as the “hopeless continent”, but now considered it  one of the “world’s fastest growing economies”. While Africa is by no means a blissful Utopia, it has become a far more viable economic proposition than ever before. The IMF estimates that by 2015 seven African countries could rank in the top ten fastest growing economies globally and by 2030 have a larger middle class than India.

Consumer spending in Africa is also expected to grow from $860 billion in 2008 to $1.4 trillion by 2020. This means that within five years approximately 200 million of the current 900 million Africans will enter the market for consumer goods. Just consider that there are already over 300 million cellphones on the continent and the mobile market is far from saturated. Currently, urbanization on the continent stands at about 40%, but by 2025 most Africans will live in cities, increasing the demand for infrastructure, transport, business and financial services, electricity and water, food, clothing and even luxury goods.

In the midst of the global economic crisis, stable and increasingly city-driven African economies have shown continued growth.  Exports from the Western Cape to our major African trading partners actually increased from 2008 to 2009 when trade elsewhere was in decline. With massive increases in Western Cape exports to Egypt, Cameroon and Benin, commentators ask if Africa isn’t buffered by being delinked from markets in the global north. Be that as it may, Africa’s growth and South Africa’s regional economic dominance, boosted by having hosted a successful Football World Cup, most likely played a combined role in South Africa’s recent incorporation into BRICS.

Cape Town and the Western Cape must see this growth and South Africa’s strategic regional role as opportunities for positioning itself as a gateway for multinationals moving into Africa, ahead of other major African cities.

Possibly the biggest challenge we face in harnessing these opportunities is our preoccupation with local issues, such as racial politics, nationalization of mines or foreign land ownership, rather than opportunities and challenges in the global economy.

Instead of bickering amongst ourselves, South Africa should lead and facilitate greater inter-Africa trade, before others in BRICS take the gap. China’s trade with Africa is expected to exceed $110bn by the end of 2011.  In the process they have already knocked South Africa out of its position as the biggest foreign direct investor into the continent.  And the Indians are hot on their heels.  Countries like Nigeria, Rwanda, Kenya, Sudan, Tanzania and Mozambique are lining up to capitalize on this largesse.

So, in the face of this massive increase in international interest in Africa, how do we ensure that the Western Cape is considered a global African basecamp?  We start by looking at where our current strengths and opportunities lie.

The Western Cape has developed significant export expertise, particularly in mineral resources through the port of Saldanha and in cold chain management through the port of Cape Town.

The African continent is also the Western Cape’s second biggest trade partner after the EU. In 2009, 20% of the Cape’s exports went to African countries, with 61% going to the tariff-free Southern African Development Community (SADC).

Our biggest trade opportunities in Africa, therefore, come from our 14 SADC neighbours and stable countries in West Africa.  Yet a lack of flights make it notoriously difficult for business people in Cape Town to access these countries.  Direct flights from Cape Town have improved in recent years and we hope SAA’s plans to increase its African reach will include flights from Cape Town to destinations like Luanda and Lagos, or conversely that African airlines will connect with us. Luckily there are early signs that some low cost airlines are considering cross-border flights.

Numerous Western Cape based companies, such as Shoprite/Checkers and Engen, have already expanded across Africa, with their bankers, auditors and legal firms coming close behind.  Others have the opportunity to follow suit.

We also must not forget the opportunities presented by the United States’ African Growth and Opportunity Act (AGOA), which allows some 1300 products from SADC to enter the US tariff free.  Cape based manufacturers sourcing materials and components from SADC and assembling them here will qualify, but we are nowhere near using AGOA to its full potential.

An act of the South African government, the Regional Holding Companies Regime, encourages foreign companies to set up headquarters in South Africa without any significant tax exposure while expanding into Africa. Its enactment should benefit Cape Town in particular, considering a combination of factors.

First is our position as a lifestyle choice for talented expatriate professionals, who find it much easier to convince their families to settlle in Cape Town than, say, Brazzaville or Dakar.  This same factor ensures a pipeline of local talent wishing to be based in Cape Town.

The second is our strong services sector, which makes it viable for companies to consolidate their pan-African activities in greater Cape Town.  Ongoing improvements in bandwidth cost and speed, including the recent landing of the new West African Cable System (WACS), will also encourage other companies to emulate, which is setting up a 400 seat call centre in Cape Town.

The third is an increasing recognition of Cape Town as a hub of innovation.  This has encouraged companies like Foodcorp to establish its food innovation centre and Google to set up its Umbono tech startup incubator in Cape Town. Johnson & Johnson have used it along with their African expansion plans to successfully overturn an international decision to close their Cape Town factory.

This combination of factors has proved particularly helpful to firms that want to be in Cape Town and are not tethered to a physical location or the locale of their major clients.  DHL Express and Steinhoff International are good examples of companies that have recently moved to Cape Town.

Now we must emphasize these strengths and encourage other businesses to use Cape Town and the Western Cape as a base for diverse trans-continental industries.

The 2010 FIFA World Cup slogan was “Ke Nako” – it’s our time.  It really is Africa’s time. Let’s use the Cape’s innate innovation and entrepreneurship to ensure that we capitalize on these opportunities for business growth and development, for the benefit of both the Western Cape and Africa.  If we don’t, a host of other potential African gateways will jump at the opportunity.

Author notes:

Guy Lundy is the CEO of business organisation Accelerate Cape Town and the Deputy Chairman of Wesgro (The Western Cape Investment and Trade Promotion Agency). 

Nils Flaatten is the CEO of Wesgro.