Downtown Cape Town, business district with skyscrapers and highrise buildings, underneath famous Table Mountain at the left and Lion's Head at the right.
Bouncing back: Cape Town’s corporate sector has been a bright spot in the South African economy © Getty

Western Cape is the third largest of South Africa’s nine provincial economies, after Gauteng and KwaZulu-Natal, and the second most prosperous after Gauteng. But this year, it had the biggest headache.

In what many provincial officials saw as exaggerated coverage, domestic and international press focused on Cape Town’s dramatic water shortage and the approach of what the city itself had christened “Day Zero”, when water would be severely rationed.

Day Zero was staved off by both emergency water-saving measures and modest rains in June. But Ivan Meyer, the province’s finance minister, acknowledges the scale of the problem. In a Provincial Economic Review and Outlook report published last September, he said the impact of climate change was likely to be a permanent feature of the province’s economy. “This will require new and innovative ways to deal with water resource management in the Western Cape as it directly impacts on potential economic opportunities,” he said.

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“People realise this is not just a temporary crisis,” says Lawson Naidoo, executive secretary of the Council for the Advancement of the South African Constitution, and a Cape Town resident.

“Cape Town has done exceptionally well in managing the crisis and the citizens of Cape Town have also responded very well, in that consumption was reduced dramatically. But many people realise this is going to be with us for a very long time.”

The provincial government estimates that as many as 60,000 jobs in agriculture were lost in 2017, though the sector bounced back strongly in the final quarter of the year. The drought has also pushed up food prices. Coupled with the falling rand — a result of domestic political uncertainty, contagion from the Turkish currency crisis and the prospect of further interest rate rises in the US — household expenditure for poor families could go up significantly, according to the Bureau for Food and Agricultural Policy.

Businesses — from food exporters to the film industry— suffered as the province grappled with not just the practical problems associated with water shortages but the psychological ones too. Although it is hard to quantify, provincial officials admit that some decisions to invest were put on hold while investors took stock of the long-term implications of potential water shortages.

Investment in agriculture could also be affected by the national debate on land expropriation, provincial officials warn. In July, Cyril Ramaphosa, the new president, said his government would amend the constitution to more clearly define the circumstances in which land could be expropriated without compensation, though he has pledged nothing would be done that might endanger farming output.

Despite the long list of challenges, says Tim Harris, chief executive of the tourism, trade and investment agency, Western Cape has weathered the storm. Its economy grew more than 1.5 per cent last year and it created more employment than any other province, adding 123,000 jobs in industries such as high-tech and renewables, he says.

Citrus exporters have found new markets in Asia and Oceania. The province is now the world’s fifth-largest citrus exporter.

The unemployment rate, at 21 per cent, is several percentage points below the national level, though in Cape Town youth unemployment, also below national levels, is still a dispiriting 47.4 per cent, according to official figures.

“If I’m looking at unemployment levels, the picture in the Western Cape is somewhat better than the rest of the country,” says Mr Naidoo. “Whether that can be put down to Democratic Alliance policy or the traditional strengths of the economy is hard to say,” he adds, referring to the opposition party that has dominated provincial politics for a decade.

For whatever reason, says Mr Naidoo, black professionals who settle in the province often don’t stay long. “People still feel excluded and in many respects Cape Town is still a very divided city,” he says, contrasting it with the relative integration of Johannesburg.

Mr Harris says job creation — through attracting investment — is the best long-term solution to both unemployment and inequality. Western Cape has a Gini coefficient of 0.62, on a scale in which 0 is perfect equality and 1 is perfect inequality. Again, that is fractionally better than the South African average. But it still puts the province among the most unequal societies on earth, on a par with the likes of Haiti and Lesotho.

Still, as Mr Harris says, Western Cape has one of the most diversified and thus resilient economies in South Africa, indeed the continent.

Agriculture, including wineries, is an important employer outside Cape Town. The province also has a sophisticated tourism industry and has been able to leverage its quality of life as a marketing tool to attract investors in areas such as outsourcing, advertising, fashion and film production.

Cape Town also has a well-established financial and business services industry and a strong manufacturing base from agro-processing and textiles to higher value-added products, such as medical devices. International investors include Kimberly-Clark, GlaxoSmithKline and General Electric.

“It’s about lifestyle and a having a functional city with great infrastructure,” says Mr Harris. “In the end, that’s part of our growth story.”

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