Can Cape Town rival Johannesburg as a business hub?

Johannesburg has long been South Africa’s main home for business, but Cape Town is trying hard to usurp this position. 

Simbarashe Mabasha and Simukayi Mukuna, co-founders of South African video on demand (VoD) startup Wabona, have run their business from both Johannesburg and Cape Town. And although they are in no doubt of the merits of Johannesburg as a centre of business, there is a belief that Cape Town has something major to offer, particularly to smaller businesses.

The most powerful corporate centre in Africa, Johannesburg generates 16% of South Africa’s GDP, employs 12% of its workforce, and houses 74% of corporate headquarters. Between six and eight hours by road away from five other African countries, and less than four by air, it has the benefit of location, and attracts some of the largest infrastructure projects on the continent.

“Johannesburg is one of Africa’s economic hubs with a large multicultural work force and market. There is better access to both human and capital resources. Johannesburg is geographically well positioned for access to southern African economies and Africa as a whole. The pace of business is better in Johannesburg,” says Mabasha.

Mukuna agrees on Johannesburg’s merits in these respects.

“Johannesburg’s biggest advantage has got to be the number of large companies that are based in the city. This leads to a large amount of talented people moving to the city,” he says.

“The high concentration of talented people in the Gauteng area means you have a large addressable market for a number of goods and services as well as being able to get things done quickly.”

But Cape Town has its benefits too. For Mabasha, the size of the city and its well-integrated public transport system make it much easier to get around.

There is a developing tech scene, while, he adds, “the key benefits are access to service-led industries, talent from the University of Cape Town and the University of the Western Cape, and access to some of the hottest tech minds in South Africa.”

The government has also assisted in this respect.

“Cape Town provides better infrastructure and investment support for certain industries in particular tourism and technology,” says Mabasha. “Johannesburg struggles to provide support for SMEs [small and medium enterprises] as a whole as compared to Cape Town.”

Mukuna adds that the lifestyle benefits offered by Cape Town are making it an attractive destination for businesses.

“Cape Town is largely a lifestyle-driven city and you find that established people live in the city [alongside] those who want to raise a family with quick access to many of the fantastic lifestyle activities you can engage in,” he says.

“This means if you are setting up a lifestyle business or looking to target affluent, established, in career terms, consumers, Cape Town is a fantastic
destination.”

It is these dual benefits of better government-provided infrastructure and a more enjoyable way of life that the local authorities in Cape Town are emphasising as they try to shed the image of Cape Town as a “weekend city”.

Nevertheless, tourism is and will remain Cape Town’s main revenue stream. Between 91-97% of South Africa’s tourists have passed through the city in the last five years, with tourism worth an estimated $1.3bn each year. But work has been under way to improve the city’s attractiveness to businesses as well.

Building up the Cape

Cape Town’s startup scene, as mentioned by Mabasha, is booming, accounting for more than half of South Africa’s startup jobs. And the City of Cape Town has been rolling out high-speed broadband as part of a seven-year $117m programme.

Western Cape’s Minister of Economic Opportunities Alan Winde says the last five years have seen an increase in the value of new foreign investments of ZAR25bn ($2.1bn), while Wesgro, the province’s trade, investment and tourism destination promotion agency, secured conference bids worth ZAR347m ($29m).

“A number of international companies including Amazon, IBM, Harley Davidson and Altech have set up shop in the province. It’s clear the Western Cape is a leading business destination for international companies and conferences,” he says.

Winde believes that the Western Cape is taking advantage of its natural benefits as a place to live and work, but says that the government is committed to creating an enabling environment for businesses, cutting red tape and developing skills.

“Skills development is an important economic priority. The Western Cape is home to a professional workforce and we continue to invest in skills so our young people can take advantage of economic opportunities. The continent’s best universities are also located in the province,” he says.

“Our number-one priority is to create opportunities for growth and jobs. To do so, we also have to build an investor-friendly environment.”

Tim Harris, CEO of Wesgro, asserts that Cape Town is already an established business hub, citing the presence of the likes of Shoprite, Woolworths, Pick n Pay, PSG, Foord, Metropolitan, Coronation, and Naspers.

“And it is not only the big corporates in these sectors that are run out of the region, but the innovative startups in these sectors are also Cape Town-based,” he says.

Harris quotes former New York Mayor Michael Bloomberg, saying: “The best way to create a city businesses want to invest in is to create a city people want to live in.”

He claims that this is a policy Cape Town is actively pursuing.

“Cape Town is reaping a dividend from being the best-run city in the country and from the lifestyle benefits of the natural beauty of the region,” he says.

“Aside from the high-quality lifestyle and benefits of infrastructure that works and efficient government, our region has a strong skills pipeline with four universities and two globally ranked business schools. We have a competitive cost of living: 60% less than New York, 11% less than Nairobi and 17% less than Johannesburg.”

Harris says the Cape Town region’s future is bright, due to the high levels of innovation and entrepreneurship relative to other South African cities.

“Cape Town was the official World Design Capital in 2014 so our businesses can easily find creative and development talent to build the products of the future.”

Stellenbosch: The third option?

Some South African business people who have left Johannesburg for the Western Cape have chosen not to head to Cape Town, but rather to a town of less than 120,000 people 50km along the N1 motorway.

Nestled in a valley between the various mountain ranges, Stellenbosch is a quiet town of roadside cafes and restaurants, popular for its golf courses, pleasant climate and easy access to the sprawling Winelands that surround it on all sides. But this aesthetic appeal, partnered with an excellent university and an ambitious free Wi-Fi project ahead of its time, is turning the small town into an unlikely destination for business, with prominent figures deserting the rough and tumble of Johannesburg for the calmer, cooler Winelands.

Such figures include former iBurst boss Alan Knott-Craig Jr. and former First National Bank CEO Michael Jordaan, who left his lucrative role at the Bank to relocate to Stellenbosch, taking up jobs with Angel Hub Ventures and Mxit. He is the first to admit that the move was personal, but says Stellenbosch certainly has its merits as a place to do business.

“I often take people on walking meetings around Stellenbosch instead of meeting at our offices, which I can’t say invitees would have agreed to in Jo’burg CBD [Central Business District],” he says.

“Stellenbosch is and always will be wine country, and the tourists know it too. You have a large population of tourists and students here but I think the younger working population is slowly starting to grow.”

Tom Jackson