South African cities should be encouraged to differentiate themselves

Guy Lundy May 31, 2010

South Africans have a rather outdated tendency to think that all of its cities should be the same. As a result we judge Johannesburg, Cape Town, Durban and anywhere else in the country by the same criteria, and believe that all our cities should focus on the same industries, compete for the same kind of talent and so on.

Most of the rest of the world has moved way beyond this point. Los Angeles focuses predominantly on the creative industries while New York focuses on financial services. Bangalore focuses on IT, while Mumbai is the home of Bollywood. Dalian focuses on heavy manufacturing and petrochemicals, while Shanghai is the place to go if you’re in the business of cars or high tech.

This ability to spread industries across the country is particularly noticeable in the United States and Germany, both of which have a large number of similarly sized cities that focus on different industries and attract different types of talent. No one city is so big and lumbering that it becomes inefficient and unworkable.

Compare this with the cities of South America. At 20 million people, Sao Paulo, Brazil, is the biggest city in the southern hemisphere and completely impossible to get around in a hurry. Buenos Aires has 13 million people, around a third of Argentina’s population. Santiago has 5 million people, almost half of Chile’s populace, squeezed into a ring of mountains, and almost 90 percent of the country’s population lives within 300 kilometres of the capital. These cities have become very difficult to manage.

Therefore it should be with concern that we note how South Africans, particularly those in Gauteng, seem enamoured with the notion that Johannesburg should be the great magnet that attracts all who should stray near her.

The Mail & Guardian’s recent article, entitled “Lure of the mine dumps”, is a case in point. The article uses a series of anecdotal interviews to support the reporters’ contention that “Cape yuppies are giving up the mountain for mine dumps”. Young South Africans have been leaving Cape Town for Johannesburg ever since some fortunate farmer kicked over a nugget of gold 114 years ago. This is not news.

Nevertheless it has not led to the demise of Cape Town and is unlikely to do so anytime soon. Another M&G article in 2007 entitled “The death of Cape Town?” described Old Mutual’s announcement that it would move its senior leadership to Johannesburg as “the surest sign yet that the Cape metropole has become little more than the visdorp its detractors make it out to be”. One can’t help but think of the famous quote by Mark Twain: “The reports of my death are greatly exaggerated”.

Three years after that 2007 prophecy the vast majority of Old Mutual’s staff are still based in Cape Town, and if anything the number is likely to grow as it expands its capacity to deal with back office administration and IT for some of its subsidiaries around the world. Two other companies that have moved their head offices are BP and Shell, both of which also still have several hundred employees in their Cape Town offices.

What has changed in all three cases is that there has been a separation of business activities between the two centres – senior executives and customer-facing staff in Johannesburg because that’s where most of the big customers are, with a consolidation of back office functions in Cape Town. In Old Mutual’s case, about 85% of the company’s non-sales staff members are still working at Mutualpark in Pinelands, where the operations, product, information technology and finance areas of this Cape-founded group have been based since 1956.

This is considered normal practice elsewhere in the world. Just one example is the decision by Boeing to move its head office from Seattle to Chicago, while maintaining the majority of its staff working in the factory in Seattle. That decision was based on a spreading of risk and the ability for its customer-facing executives to be more central and thus have easier access to markets. Here this practice is put forward as proof that nowhere else can compete with the “economic heart of Africa” and that the rest are sure to go the way of Mthatha.

Hopefully we will soon mature to the point where we recognise that different cities have different strengths and should be encouraged to collaborate and complement each other by focusing on different industries and economic activities. Head offices would then naturally gravitate towards those centres that focus on their primary industry, and other functions would be housed where it makes most sense. For example, Durban should logically be the home of logistics. As the biggest port in Africa, it should at the least undoubtedly be the home of Transnet Ports Authority, which is currently based in Pretoria.

In the case of Cape Town, Accelerate Cape Town has done a significant amount of work to develop Cape Town Vision 2030 (see www.vision2030.co.za). This 20 year vision of Cape Town as a “Global African city, a city of inspiration and innovation” recognises the Cape’s ability to attract creative talent from around the country, the continent and the world, and it identifies a number of steps that must be taken to achieve this ideal.

It also identifies several industries that have the potential to grow significantly over the next 20 years. These are agri-processing (wine is already South Africa’s biggest agricultural export), tourism, renewable energy, oil & gas related services, business process outsourcing, the creative industries (especially design, advertising, film and IT), medical research, higher education and asset management.

Many of these sectors consist mostly of medium-sized companies run along entrepreneurial lines and staffed by experienced creative thinkers. The sectors traditionally dominated by large corporates, such as mining or heavy industry, do not feature. It could therefore actually serve our purpose if young professionals leave Cape Town and gain their first ten years of experience in Johannesburg, London or New York, before returning home ready to start their own thing.

Capetonians are also significantly more entrepreneurial in nature to the rest of South Africa, as proven by the Global Entrepreneurship Measurement (GEM) Study. The GEM Study found that Cape Town’s early stage entrepreneurship level is 190% higher than the national average (Johannesburg is rated as 60% higher than the national average). This has much to do with the fact that people choose to start their businesses in Cape Town because of the balance between work and lifestyle. That balance is especially ideal for those in the creative industries and for businesses that employ a high percentage of creative thinkers focused on finding solutions.

Cape Town’s revitalised city centre and other lifestyle benefits are also enormously attractive to companies from abroad and those employing high numbers of expats. This is one of the reasons why an oil and gas industry hub is fast establishing itself in the Cape to service the West African corridor. Consider the alternatives: Luanda, Brazzaville, Libreville or Lagos, amongst other less attractive options. All these are very expensive hardship postings that are not quite as pleasant to live in as Cape Town. Other industries, like asset management, also benefit from Cape Town’s ability to attract people who have the skills and ability to choose wherever in the world they would like to live. This is one of the reasons why companies such as JP Morgan, Macquarie and Close have chosen to have such a significant presence in the Cape.

It is true that most corporates in Cape Town find it difficult to attract and retain young black professionals, often losing them to Johannesburg. Research done by Accelerate Cape Town and others has found that this is related to a number of factors, including the difficulty of forming a professional network, not having access to visible business role models and not being attracted to the beautiful venues that so many young white professionals frequent. As a result, Accelerate Cape Town together with Allan Gray has created the “Inspiration Sessions”, a very successful series of networking sessions where young professionals of all races can meet, while being exposed to presentations by inspirational leaders in the kind of venues that make maximum use of what Cape Town has to offer. In this way the organisations hope to go some way towards addressing the retention of skills in the Cape.

South Africa’s cities are different from one another. They offer different opportunities to different people, who are attracted to them for different reasons at different stages in their lives. We should embrace these differences and encourage the development of all our cities, rather than allowing, and even encouraging, the development of one major city or region at the expense of all others. This would ultimately be at the expense of the country, as the arteries of the economic heart would become so clogged up that it would stop working. One only has to try to do business in Cairo or Bangkok to know what that can look like.

Many young professionals may be moving to the mine dumps, where they can cut their teeth in the head offices of the largest companies. But we should be celebrating the fact that others are choosing Cape Town as the place where they can work for innovative companies in specific sectors that complement those upcountry and help to drive long-term economic growth for the whole nation. That would make us more like the rest of the modern world.

About Guy Lundy, the author

Guy Lundy is the CEO of Accelerate Cape Town, a business think-tank representing 40 major corporations that brings together key stakeholders in the Cape region to develop and implement a long-term vision for sustainable, inclusive economic growth. Guy was born and raised in Cape Town. Guy completed his Bachelor of Commerce (Honours) in Economics at UCT and his Masters in Futures Studies at Stellenbosch University. He is also the author of two books about South Africa and its future.