Will thriving Western Cape go own way?
Given the extent to which South Africans are flocking to the Mother City, it seems just a matter of time before the Western Cape starts to ponder whether it can decouple economically from the rest of SA.
Economists say this is unlikely, given the degree of economic integration that exists between the provinces. But Western Cape house prices have been higher on average than those in the rest of SA for decades, suggesting that its property market may have already decoupled.
In addition, about 300 new families enter the province every month, dominated by people leaving Gauteng. This suggests that Cape Town is attracting people with greater skills and more capital than 20 years ago, when almost an equal proportion of migrants came from the impoverished Eastern Cape.
The Cape Winelands is the fastest growing area in SA for high net worth populations, according to Sandra Gordon, a research analyst with Pam Golding Properties. She thinks it’s possible that Cape Town’s housing market could gradually decouple, noting that the city is increasingly gaining an independent global profile and is seen as an attractive lifestyle destination and investment option.
For instance, Cape Town has been named an emerging global tech city by Savills’s Tech Cities index. It identifies cities that appeal to tech companies employing millennials.
According to provincial development agency Wesgro, Cape Town is fast developing into the biggest tech cluster on the continent, boasting both Amazon’s web services division as well as Takealot, the biggest e-commerce player in Africa.
Wesgro CEO Tim Harris says when it comes to attracting investment, decoupling from SA would actually make life harder for Cape Town because it is the country’s institutional and infrastructural strength that attracts many investors.
But in terms of economic performance, the province has no desire to follow the rest of SA downhill. Over the past year, it has bucked the national trend in job creation, for instance. SA’s official unemployment rate spiked to a record high of 27.7% in the second quarter, from 26.6% a year earlier, according to Statistics SA.
Over the same period, unemployment in the Western Cape fell from 22.2%, to 20.7%.
When disillusioned job seekers are included, the province fares even better, with an unemployment rate of 24.6% compared with the national average of 36.6%. Differences in demographics and educational attainment may explain the Western Cape’s lower unemployment numbers, but it’s clear from Bureau for Economic Research data that business people in the province are also more upbeat.
Business confidence levels are almost 10 index points higher in the Western Cape — at 43 points as of September 2017 — than the national average of 35. Even so, Capetonians are probably dreaming if they think the regional economy can decouple from SA’s.
First National Bank property economist John Loos predicts that affordability constraints will ultimately slow migration into the province, cooling house price growth. The property market will then resume a cycle roughly in line with the rest of the country’s, albeit at higher long-run average price levels.
“Until a year ago, the Namibians were trying to implicitly argue that they were decoupling from SA and that their housing market, which had been booming for some years, was ‘different’,” he says. “Alas, as that country bundled into recession, they saw that they couldn’t just wish away their economic links to SA.”