The picture-perfect city of Cape Town in the Western Cape is what postcard dreams are made of – Table Mountain draped in its ethereal cloth of mist, the blue ocean lapping against a dramatic shoreline, Victorian buildings stretched out along the boulevards of the city centre. Moving beyond that  and into the rest of the province, the beauty persists – sweeping vistas of wine estates, rugged mountain peaks and charming villages.

Few would dispute the region’s aesthetic appeal, but there are two very important characteristics of the region’s economy that are masked by an overemphasis on attracting people to the Western Cape’s natural beauty. The one is that there are sectors far less romantic than tourism, which make a sizeable contribution to the province’s economy. The second is that the province’s dire socio-economic inequality underpins its economy, and any positive economic growth is far outpaced by the rise in unemployment.
“Tourism in the Western Cape has, and will continue to be, a leading sector in the attraction of foreign direct investment through the foreign visitor tourist spend,” says Solly Fourie, head of the Department of Economic Development and Tourism for the province. “Recently, there has been an increase in the contribution of business tourism to the region. Also, obviously, the exposure which many visitors had to the region during the 2010 World Cup has contributed to the region being perceived as largely being a visitor destination.”

However, he adds, there are many industries that have recorded positive performances and will “continue to reflect a changing shift in the region’s objective of having a more diversified sector approach”. He says some smaller industries – such as boat- building, the oil and gas servicing sector, the aquaculture and agri-processing industries, and the business process outsourcing sector – continue to grow. “These sectors are expected to become labour-absorbing sectors in the short to medium term,” he says.

According to Professor Ivan Turok, deputy executive director in the economic performance and development unit at the Human Sciences Research Council, one should avoid thinking of any economic sector in the province as “booming” right now, since a “general economic malaise” persists. But, he says, “relatively strong sectors at the moment in the province’s economy include financial services, business services, ICT, creative industries, higher education and call centres/business process outsourcing.” The Sake24 Western Cape Economic Barometer (Figure 1) – an index used to gauge economic activity while factoring in stresses on the economy – found that economic indicators have turned negative. But, says economist Mike Schüssler: “The Western Cape economy is, at least in the short term, in a contraction phase, but notwithstanding this, the index is up 9% from August last year.” The provincial government’s treasury recently issued its Provincial Economic Review and Outlook (Pero), which echoes Turok’s emphasis on service industries.

“The rapid development of service industries has been particularly pronounced in the Western Cape, and the large contribution of wholesale and retail trade, finance and insurance and business services is a notable characteristic of the region’s economy,” it states. Taking a broader time-based view (from 2000 to 2009), it was found that the Western Cape economy performed relatively better than the national economy – albeit by a small margin – and that the service industries had contributed to this.

During that period, the economy grew by 4.3%, whereas the national economy grew by 3.6% during the same period. Exports have also played a major role, with agriculture and its associated processing industries being by far the largest contributor to this sector. From 1995 to 2010, the province’s export growth averaged 5.7% per annum, which is substantially faster than the 2.5% annual growth achieved in the rest of South Africa, according to the 2011 Pero. “Support for the agriculture value chain must be maintained and even expanded, but it is also necessary to recognise the urgent need to diversify the export base of the Western Cape by growing exports of tradable services and manufactures,” the report says.

Other sectors that make a sizable contribution to the region’s exports include, in order of their contribution size, metals; metal products and machinery; petro-chemicals; rubber and plastic; finance; insurance and business services; and transport and communication.

Being a coastal region and therefore fertile ground for export, the province is often measured against performance indicators of KwaZulu-Natal, which stands as its main competitor for second place in the national economy, with Gauteng as a consistent front-runner. “The Western Cape economy has been smaller than the economy of KwaZulu-Natal since at least 1996, and this is forecast to remain unchanged till 2015,” says Fourie, “but the larger economy of KwaZulu-Natal is due to its larger population. On a per capita basis, the Western Cape is the second-largest provincial economy – and has been since at least 1996 – and this is not forecast to change in the near future. Whilst the relative ranking of regional GDP between the Western Cape and KwaZulu-Natal is relatively close, the Western Cape has demonstrated a holistic approach to economic growth and development, as well as improving access to basic facilities.”

With regards to the latter, a recent study showed that the Western Cape had made significant inroads here and is ahead of all other provinces in erms of providing municipal services. Currently, 83% of all households receive water, sanitation, electricity and refuse removal.

The province’s economy, however, is still dogged by the issue of unemployment, and the fact that growth does not translate to expanding employment opportunities. For example, whereas the real economy expanded by close to 45% between 2001 and 2010, the regional workforce only grew by close to 16% over the same period. This gap, according to Pero, is because of a “structural problem” within the province’s economy. Because the growth is concentrated in the skills-intensive service industries, rather than the semi-skilled and unskilled labour industries, growth does not lead to employment opportunities in the way that it should.

Alan Winde, Western Cape minister of Finance, Economic Development and Tourism, says: “The Western Cape government believes that job creation should be pursued through export and infrastructure-led economic growth. While this is largely outside of the provincial government’s control, it is the intention of the province to support the increase of competitiveness of the region.