Gauteng’s cities are globally competitive

The Gauteng City-Region – which comprises Johannesburg, Ekurhuleni (East Rand) and Tshwane – remains South Africa’s largest and most globally significant metropolitan economy, rivalling global peers when it comes to foreign direct investment and entrepreneurship activity, a new report finds.

In a report entitled ‘South Africa’s Global Gateway’, the Global Cities Initiative (GCI) finds that the Gauteng City-Region remains the top destination in sub-Saharan Africa for greenfield foreign direct investment.

The GCI is a joint-project of the Brookings Institution and JPMorgan Chase that seeks to strengthen cities’ engagement in world markets in the belief that cities are fundamental drivers of national and global growth.

The Gauteng City-Region (GCR) ranks third out of eight global peer cities for total greenfield FDI between 2009 and 2015, receiving more than $11.3 billion over the period, behind only Istanbul ($12.6 billion) and Rio de Janeiro ($17 billion).

This is more than China’s Shenzhen, Mexico City, Warsaw, Santiago and Cape Town.

Johannesburg alone attracted a $6.1 billion share of FDI over the period.

“We see trade and investment as being a critical part of boosting growth [in the GCR] going forward,” Joseph Parilla, senior research associate at the Brookings Metropolitan Policy Program, told Moneyweb.

In particular, Parilla listed the region’s services sector as a major competitive advantage and something to be exported beyond the local economy.

“If you’re establishing a regional headquarters as a foreign investor, all the accounting, financial services, management consultant, marketing and advertising firms concentrate in the Gauteng city-region,” he said.

Whereas growth in output and employment in the GCR’s mining sector has been negative over the past 15 years, financial and business services in the city region have grown employment by 88% and output by 106% over the period.

The table below shows the industrial make-up of the city-region as at 2014.

Source: Brookings analysis of Oxford Economics data.

The challenge now is to ensure that the skills delivered by education and training are indeed those demanded by employers, said Parilla.

“This is the single biggest issue facing this region and the country: we’re producing skills that aren’t of a sufficient standard and aren’t relevant to where the opportunities are,” commented Marc Hussey, senior country officer at J.P. Morgan South Africa.

“I think if you get that right, it’s one of the things that could transform the growth rate,” he said.

Joburg is SA’s entrepreneurial heart

The report finds that entrepreneurial activity is much higher in Gauteng than in the rest of South Africa and roughly on par with levels of entrepreneurial activity in the countries of its peer city-regions.

Johannesburg in particular stands out as being the entrepreneurial heart of the country.

Source: Brookings analysis of data from the Global Entrepreneurship Monitor

Despite high levels of entrepreneurial activity, the GCR has not managed to capture a significant portion of venture capital (VC) investing. VC funds tend to favour highly scalable investments, particularly in the tech space, which could explain why Cape Town, which has a large number of tech entrepreneurs, has managed to attract high levels of VC investment.

Source: Brookings analysis of Pitchbook data and SAVCA data

Three sectors accounted for 83% of all the venture capital invested in the GCR between 2005 and 2014, according to the report. These were communications and networking (40%), software (30%) and commercial services (13%).

Government leaders welcome report

The GCI is engaging with central and local government, including the Gauteng Premier’s office, as well as the City of Johannesburg and other civil society and business organisations, Parilla said.

“This is a very important report for us, coming at the right moment when we are planning the roadmap for the Gauteng City Region in the next 15 years,” commented Gauteng Premier, David Makhura, who highlighted the importance of working with the private sector to address the underlying challenges around employment.

“We are proud that Gauteng is a hub of Africa, as this study documents, and look forward to working with the Premier and city-region leaders to take advantage of the opportunities to make it a truly global city-region,” said Minister of Cooperative Governance and Traditional Affairs, Pravin Gordhan.

Brought to you by Moneyweb