PERO and MERO 2017 Speech
Honourable Speaker and Deputy Speaker
Honourable Premier and Cabinet Colleagues
Honourable Leader of the Opposition
Leaders of other political parties
Honourable members of the Western Cape Legislature
Citizens of the Western Cape
Madam Speaker I rise today to table the Western Cape Government’s economic intelligence for both the provincial and municipal sphere.
Madam Speaker, the economic and socio-economic research as captured in the 2017 PERO and MERO is used to inform and guide provincial and municipal policy‑making, planning and implementation.
Trends highlighted in the publications also reflect on the level of impact made as part of the provincial and municipal services and programmes being implemented in the Western Cape Province.
The evidence‑based approach adopted in this research supports good governance, financial sustainability, economic sustainability and facilitates the creation of public value.
Madam Speaker, the International Monetary Fund forecasts global economic growth to accelerate to 3.5 per cent in 2017 and to 3.6 per cent in 2018.
However, according to the Bureau for Economic Research, growth in the South African economy is expected to remain frail at 0.3 per cent in 2017 before accelerating to 0.9 per cent in 2018.
The weak GDP growth outlook and, crucially, Madam Speaker, the expectation that business confidence will remain depressed in 2017, potentially also in 2018, will likely see private sector fixed investment continue to underperform.
THE WESTERN CAPE
Madam Speaker, estimated economic growth for the Western Cape is at 0.8 per cent for 2016 whilst output in the Province could rise by only 0.5 per cent in 2017 before a more meaningful improvement of 1 per cent in 2018.
The Western Cape, Madam Speaker, shares common risks facing both the global and national economies. The persistent drought conditions being faced by the Western Cape Province will affect the agricultural sector together with the rest of the value chain.
Further to this, additional negative effects in the form of employment losses and lower exports are expected.
The Western Cape is also more closely linked to the Euro Area and the UK than the rest of the country and a more pronounced slowdown in these regions will have a more detrimental impact on the Western Cape.
Madam Speaker, the Province is in the midst of a severe water crisis.
As of August 2017, the Province has received around 30 per cent less rainfall than in a normal winter season.
The impact of the water crisis on the Western Cape economy is likely to be significant, both directly on businesses and through their supply chains.
Madam Speaker, the agriculture subsector recorded the fastest growth in employment of 4.9 per cent per year between 2011 and 2016 followed by the construction subsector at 3.7 per cent.
In the Western Cape manufacturing employment declined from 248 006 in 2011 to 240 450 in 2016.
The oil rig repair industry was negatively affected by a decline in oil prices at the end of 2014.
Ship repair and ship fabrication activities have taken up the slack in demand in the rig repair activity in 2015. Cape Town is currently the dominant ship repair location in South Africa.
Tourism in the Western Cape has shown resilience in recent years.
The Western Cape received the highest number of tourist bed nights and also had the highest average length of stay of any province in South Africa in 2016.
A provincial initiative to promote Western Cape exports is the development of a halal‑relevant food and agri-business subsector targeting the global halal food and product market.
The Halal Value-Chain Study recognises that the Western Cape’s most significant opportunity lies in manufactured food products. Specific products identified for export promotion include snacks, sauces and juice.
Business Process Outsourcing presents a significant opportunity for economic growth and employment in the Western Cape.
From 2012 to 2016, employment in the Western Cape BPO sector grew at an average annual rate of 84 per cent culminating in 20 500 jobs in 2016.
Subsequently, the Western Cape increased its share of the South African market from 40 per cent in 2012 to 63.0 per cent in 2016.
The recent rapid growth has put additional pressure on the skills pipeline.
Labour market dynamics in the Western Cape
Madam Speaker, the Western Cape’s unemployment rate was 20.7 per cent translating to about 628 000 individuals unemployed in the second quarter of 2017.
The second quarter of 2017, saw 2.4 million people employed which represent around 54 per cent of the Western Cape’s working age population.
Over the five-year period (2012Q2 to 2017Q2), an additional 326 000 individuals found employment within the Western Cape.
Within the Province’s formal sector, the largest employment industries are community, social and personal services; wholesale and retail trade; and financial and business services, together accounting for 56 per cent of formal sector jobs.
In the first quarter of 2017, there are 2.16 million youth of working age in the Western Cape while the narrow unemployment rate amongst youth in the Province was estimated at 30.8 per cent in the same quarter.
Socio-economic developments in the Western Cape
Madam Speaker, the Western Cape is estimated to be the third most populous province in South Africa.
Life expectancy, fertility rates and migration have an impact on the Province’s demographic profile.
Net in-migration is estimated at over 290 000 people between 2011 and 2016.
In 2015, 55.5 per cent of the South African population were considered poor of which 7.5 per cent lived in this Province.
The proportion of the Western Cape population below the upper bound poverty line increased from 33.7 per cent by 2011 to 37.1 per cent in 2015. The upper bound poverty line was R779 per person per month in 2011 and R992 per person per month in 2015.
Total learner enrolment in the Province increased by 2.1 per cent between 2016 and 2017.
In addition to population growth, improved retention rates have also impacted on enrolment figures.
Performance in respect of the provincial systemic tests and National Senior Certificate (NSC) results is encouraging.
Performance in Mathematics and Language across Grades 3, 6 and 9 improved between 2015 and 2016, and the NSC pass rates have improved.
NSC pass rates in Accounting, Mathematics and Physical Science have also improved between 2015 and 2016.
The Western Cape life expectancy at birth continues to increase and remains above the national average for both males and females.
The primary cause of death in the Province in 2015 was diabetes mellitus, followed by HIV.
Both child and institutional maternal mortality have declined between 2015/16 and 2016/17.
Informal housing has remained relatively stable at around 18 per cent since 2011.
When considering tenure, approximately 43 per cent of households owned their homes in 2011.
Access to municipal services continues to be prioritised and is well above the national average.
Madam Speaker, the 2017 Municipal Economic Review and Outlook highlights a concentration of economic activity in the City of Cape Town which contributes 72.0 per cent to the Western Cape’s GDPR.
Cape Winelands contributes 11.4 per cent followed by Eden (7.6 per cent), West Coast (5.1 per cent), Overberg (3.5 per cent) and Central Karoo (0.5 per cent).
The 2017 MERO further shows that between 2010 and 2015 the West Coast, Cape Winelands and Overberg Districts are showing positive signs of growth rates of 2.8, 2.9 and 3.1 per cent respectively.
The Saldanha Bay IDZ (SBIDZ) is one of five IDZs currently operating in South Africa, the aim of which is to facilitate the industrial development of the main geographical areas.
The Saldanha Bay IDZ serves as the primary service provider to the oil, gas and marine industries and will focus on the engineering repairs and logistics services.
Eden’s real GDPR growth averaged 2.7 per cent between 2010 and 2015 while the Central Karoo District recorded an average GDPR growth rate of 2.1 per cent over the same period.
The City of Cape Town grew by an average of 2.5 per cent between 2010 and 2015 mainly supported by growth in the primary (3.9 per cent) and tertiary sectors (2.8 per cent).
The 2017 MERO provides detailed sectoral, employment and skills information per municipality.
The Atlantis SEZ was established in the Cape Metro in 2011 as a greentech manufacturing hub.
The SEZ in Atlantis has attracted 30 foreign and local enterprises with four principal investors including Gestamp Renewable Industries who invested R300 million.
All regions recorded positive net employment between 2010 and 2015.
Outside the City of Cape Town, net employment increased the most in the Cape Winelands (67 844) followed by Eden (32 078), West Coast (28 655), Overberg (23 303) and Central Karoo (2 649).
Demand for skilled workers grew by 1.9 per cent for non-metro districts between 2005 ‑ 2015 and by 0.8 per cent in the City of Cape Town.
Municipal revenues continue to be under pressure to accrue internally generated funds to finance infrastructure.
This brings about an increased reliance on transfers and grants from national and provincial government.
Madam Speaker, municipalities must prioritise repairs and maintenance to increase the lifecycle of critical infrastructure particularly for water and sanitation services (bulk infrastructure) and electrification.
I recently called on all municipalities in the Western Cape to prioritise repairs and maintenance of their critical infrastructure.
We are now doing more regular site visits to determine the value for money received and to monitor performance of infrastructure spending.
Socio-economic indicators that have moved in a positive direction, include a decrease in indigent households and the increasing provision of access to basic services.
Socio-economic indicators that remain a concern in municipalities across the Province include rising unemployment, rising poverty levels, informal dwellers, households without income, crime, substance abuse, people with no schooling, dropout rates, and the prevalence of diseases such as diabetes, HIV and TB, among others.
IMPLICATIONS FOR PROVINCIAL AND MUNICIPAL POLICY, PLANNING AND BUDGETING
Madam Speaker there is upside potential from higher than anticipated growth in the Euro Area and the relative services orientation of the Western Cape.
Therefore, an approach which includes capitalising on strengths and focuses on driving economic opportunities, for example within the manufacturing, export, agri‑processing, tourism, ICT sectors, and instilling business confidence remain key to enhancing growth in the Province.
The Western Cape agriculture and agri-processing export sectors – as well as construction and tourism – are at risk from the severe water crisis, both directly and through their supply chains.
Therefore, it is key that the provincial response to the water crisis is well coordinated taking into account the potential economic implications and sustainable growth considerations.
The growing provincial population coupled with muted economic conditions will increase demand for public services such as education.
Despite the improvements in socio-economic conditions, social ills, such as crime and substance abuse, remain a challenge.
For growth to be smart it must be fueled by innovation focused on improving the performance and quality of education outcomes, strengthening research and promoting innovation and knowledge transfer in a digital society.
Municipal areas must continuously strive to diversify their economies to gain the most benefit value chains.
Investing in infrastructure remains critical in creating an enabling environment for growth.
Public investment in bulk infrastructure, roads and electrification boost economic growth by crowding in private sector investments as well as providing a solid foundation for social development.
Repairs and maintenance is critical to ensure longevity of infrastructure specifically water-related infrastructure to minimise water losses in light of the current drought.
Added to these risks are Energy Security, Climate Change and the Avian Influenza epidemic in the poultry industry.
Due to low economic growth municipalities, municipal revenues will be under increased pressure, which means municipalities will have to find the right balance between the appropriate basket of services and affordability.
Given our intergovernmental cooperation and asymmetrical approach to economic development, we value the role of all our partners including the Economic Development Partnership, Wesgro, GreenCape, local business chambers, labour and many non-profit organisations and religious bodies.
Madam Speaker, the Western Cape Government remains committed to accelerating economic growth and job creation in our region.
Madam Speaker, the economic intelligence captured in the PERO and MERO will inform policymakers, departments and municipalities on key economic issues that will impact policy, planning and budgeting.
The aim is therefore to provide more recent information of the economic and sectoral environment, which in turn informs policy, planning and budgeting and responsive interventions required by policymakers for sustainable economic and human development.
Madam Speaker, this economic intelligence will be further supported by the publication of individual Socio-Economic Profiles of every municipality in the Western Cape.
Madam Speaker, I will return to this House on 23 November 2017 to table the Western Cape Government’s fiscal response to the challenges highlighted in the PERO and MERO 2017 when I table the Western Cape Government’s Medium Term Budget Policy Statement.
Madam Speaker, it is my pleasure to table the 2017 Provincial Economic Review and Outlook and the Municipal Economic Review and Outlook for consideration in this House which will be used as part of this Government’s commitment to evidence‑based practices.
For ease of access, click on the links below to access the documents:
I thank you.
Minister of Finance
Western Cape Government