The world is changing fast and to keep up you need local knowledge with global context.
Tim Harris was part of the Western Cape’s heavyweight trade delegation which visited London last week to set the stage for enhanced trade relationships post-Brexit. In our interview, the ex-shadow finance minister and now CEO of Wesgro took time out to explain the purpose of the visit – and why the province has become a magnet for local and global businesses, especially young tech companies. House prices don;t lie – Harris and his colleagues are onto something. The Cape’s approach to unleashing human potential is a blueprint for the rest of South Africa. – Alec Hogg
Well, we’re here on a mission to really drive two messages. The one is that the Cape wants to maximise business with the UK post Brexit and the other one is to send the signal that we are still open for business, notwithstanding what you might read about national political developments. So this is an old and strong relationship between the UK and Cape Town and the Western Cape and we’re here to shore that up and the mission is being led by MEC Alan Winde, the Minister of Economic Opportunities in the Cape, and we’ve brought about ten companies, we’ve helped set up a hundred meetings for those companies over the week. So yes, we’re taking what we know to be a strong historical relationship and seeing how far we can build it.
You say “we”, many people think the name Tim Harris and think, “That’s the guy from the DA who’s the Shadow Finance Minister”.
No, I left after the last election, I spent eight months setting up a department in the Mayor’s office in Cape Town, in Patricia de Lille’s office and about two and a bit years ago I moved across to run Wesgro. Wesgro’s an interesting model for South Africa because we are the economic promotion agency for the province, but the model we have in the Cape is that we are co-funded by the city government and the provincial government. So, we’re really speaking for both the city and the province on matters economic and matters tourism and we also happen to have a very heavyweight private sector board.
We do represent an interesting collaborative model to advancing the economic agenda. It helps to have had a background in politics and in Parliament. I know the inside complexities of policy making and legislating, but it’s quite fun being in a role where I spend more time with business and more time trying to unleash economic growth in our part of the world. If you hear me talk about the challenges that we face, particularly congestion and water constraints, they emanate from the growth in the Cape. We hit some incredible numbers in terms of our ability to facilitate growth in new sectors. We almost certainly have the city centre on the continent that’s most liveable and most functional for business.
What that’s meant is the message of prosperity has spread and more and more people are moving to the Cape in search of economic opportunities. Notwithstanding that, we still have by far the lowest unemployment rate in the country. So, dealing with the side effects of growth is something that we really need to get used to in the Cape. Although these are desperate challenges, they emanate from a very positive vote of confidence by South Africans in the Cape as a place that they can find something productive to do.
Well, the house prices don’t lie.
Absolutely, those prices have performed in quite an extraordinary way and also, the real challenge in Cape Town is making sure that growth is spread. We all face with the realities of Apartheid’s spatial planning in South Africa still, but Cape Town has a particular challenge in the geography of the place and the city and the province are really committed to building the connectivity that people need to access economic opportunities regardless of where they live.
You can start to see those interventions starting to pay off, the inequality numbers are the lowest amongst the major cities in South Africa. I think if you look at the level of the number of discouraged work seekers, there are relative to other provinces, almost none in the Cape. It’s quite an interesting dynamic. We still have unemployment that’s way too high, but that section of people who tell stats to say that they’ve given up looking work, is almost insignificant in the Cape. That’s why I like to think of it as really a province of hope. People don’t give up.
Tim, there are also many people who are giving a bad news story about the Cape. I suppose it’s a little bit of a kickback against the good news, the crime statistics, for instance being often quoted.
Like all developing countries, we have real challenges in certain areas. One of them was the crime statistics that came out showing incredibly high murder rates in very restricted parts of the city that are essentially entirely about gangs and particularly drug-related crime to do with the gangs. Alec, it’s a little bit like, I was in Chicago earlier this year and Chicago has a reputation for really high crime in the States, but it’s very localised in Chicago and the same as in Cape Town.
No visitor to Chicago, I think would feel more afraid than any other major city around the world and I would urge potential visitors, business people, and tourists to the Cape to realise that. If you have a bad crime situation in some very localised areas that tourists don’t go, it doesn’t mean we don’t have an obligation to solve those issues, but it does mean that your experience as a visitor to the Cape is definitely going to be defined by those statistics.
How has the trip been to London this time round, what’s the reception been like?
I think what’s interesting about dealing with British policymakers and British government officials, is the uncertainty of Brexit. It definitely has become a factor in all of the meetings we have. We had a very high level meeting this morning with a government official and he just wanted to know what we thought was the way Brexit was going to play out. I think that’s partly why we decided to come here because we do sell billions of Rands worth of wine and agri products every year to the UK and frankly we see an opportunity post Brexit.
We think the UK negotiating a trade deal without the French or the Spanish for example, they’re probably more inclined to give us a better deal on those products. Under the EPA we already have a fairly good trading arrangement, but we just want to recognise that the UK is our biggest trading partner. It’s been our biggest investor in terms of number of projects over the last ten years, by far our biggest tourist market and it’s important for government to do what it can to maintain that business because essentially UK business broadly defined creates a lot of jobs in the Cape.
When you talk about government, you’re talking about a local government, Western Cape government, how much autonomy do you have and how much does the bad news emanating from Pretoria affect you.
That’s a great question. I always say to investors, your reality doing business in Cape Town is almost entirely defined by the services and the infrastructure that the city government rolls out. They’re essentially responsible for everything on the ground, the roads, electricity, reticulation, water and cleanliness and security. The province in our space has a big role to play in terms of the health and education that they deliver and the hospitals and schools in the Cape are strongest in the country. National government obviously, they’re controlling things that are important to investors, tax rates, exchange controls, immigration in particular and essentially, where there’s a disagreement with policy in that space, we essentially just have to operate in a constrained environment, but good relations with national government that we have, we can often resolve problems that emanate from inefficiencies or bureaucracy.
I think one of the things I’ve realised in the last two years, is that there’s a genuine effort from Minister Rob Davies and the team at the DTI to assist us with our mandates, to help us get more investment in the Cape, to help us grow exports, to help us bring more tourists. So, my experience of working with National Government is, it very rarely ends up in a point where we can’t do our jobs in a way that makes the investor happy, or the buyer happy, or the tourist happy.
Now you have DA run cities up north for a change, Johannesburg and Tshwane, perhaps learning from the experience of Cape Town and the Western Cape. Do you share notes with them or are they competitors?
No, look okay, firstly they are competitors and I think one of the things I’ve realised is how we need to get our heads around that in South Africa. I think some of the most dynamic places I’ve visited recently, like the US for example, the cities, and the states compete relentlessly with each other. They embrace the idea of competition, but no one ever doubts that Americans are very proudly American and I think that perhaps because of our history, we’re still a little bit afraid of that internal competition. So, we definitely embrace it, but that said this is a South African effort. I think there are very close relations from my office with my equivalent in KZN and Gauteng in particular.
We’ve spent a lot of time with the team in Nelson Mandela bay now. Basically, we’re all doing this because we want South Africa to succeed. That often depends on how well we can compete with each other internally to make South Africa more competitive. So we often get investors these days who are saying, “I’m considering an investment in Gauteng, KZN, or Cape Town, what’s your offer?” You know, that’s good healthy internal competition. We win some of those, others we don’t’ win and where we don’t win, we try to improve our offer. I think the answer is, we’re part of the same team effort but there is quite intense internal competition and that makes South Africa strong.
When you go back to Cape Town and you’ve been there for a few weeks, how would you judge the success or otherwise of the trip that you’re on now?
I think there are two main things we’ll look at. The trade negotiation will be conducted by the DTI and their negotiators, but we need the British buyers and those negotiators to understand just how important product lines like wine and agriculture and increasingly services are to our exporters and just how many jobs those purchasers are supporting back home. A big indicator will be how those negotiations play out and we’ll be working from our side to make sure Minister Davies has all of the arguments at his fingertips, so when that negotiation happens our products are represented. Then, I think the main thing is also nuanced understanding that beyond the headlines, South Africa is still a very strong investment case and the Western Cape is the strongest part of that strong investment case.
Therefore, a lot of it is about saying, “Look, you might have read X, Y and Z in The Economist or The Financial Times, but when you dig behind the headlines, South Africa’s still the most industrialised country on the continent, still the best quality infrastructure, still the best quality skills pipeline” and basically, if you want to access the largest market in the world that’s developing in Africa, 2.4-billion consumers by 2050, as predicted, there’s no better place to do that South Africa and we believe Cape Town is the obvious choice for a location for headquarters, so it’s telling the story behind the headlines. And I guess we’ll see that in the level of interest we get from investors. It’s been really strong, even through some of our difficult political times, but I’m hoping after a mission like this, we just shore up that position a little bit and keep that investment flowing.
And teeing up the province for what happens after Brexit.
Yes, I think so. The negotiation is the key event post Brexit but then we have to maintain our export performance in agri and wine and the reason why we have some tech and services companies with us this mission is because we also need to diversify that into the services space. We have some great tie ups with the UK…there’s a total win-win in Fintech for example, between Cape Town and London.
Where London has these deep capital markets and a huge amount of Fintech experience, we can provide developers, we can provide back office, we can answer many of their questions out of Cape Town servicing big UK Fintech operators in a win-win, create jobs in Cape Town, and support global Fintech out of London. That’s why there’s a tech focus as well on this mission and those kinds of relationships, I think you’re going to see more and more as the cost and skills advantage of building a team in Cape Town becomes apparent.
Tim, what about the flights into Cape Town?
We realised two years ago that there was a lot of economic potential in the Cape, but if you couldn’t access it conveniently from the rest of Africa or the world, we weren’t unleashing that potential. So, we set up a team based at Wesgro, but with collaboration from ACSA, the Airports Company. Provincial government, city government, Cape Town Tourism, and actually some private sector players like Naspers and Investec have joined subsequently. And we’ve formed a steering committee that established a new team to negotiate with the airlines and make the case for non-stop flights to Cape Town.
Over the last two years we’ve added nine new flights to Cape Town International. That is about 600 000 new seats every year and we’ve helped get the airport over ten million passenger mark, making it the third biggest airport in Africa now. Some of our successors have been convincing Lufthansa to fly daily to Frankfurt, Air France to fly daily to Paris. Getting the airlines to come through winter is important for dealing with seasonality, but many of them, for example, the flights that we’ve added to the UK are just seasonal flights. Therefore, if you add up all of the new flights, it represents 600 000 seats and nine new routes launched to Cape Town in the last two years.
And price competition?
Yes, we added two Gatwick flights to provide some competition for the monopoly BA has on Heathrow and the prices came down 30% pretty shortly afterwards, so that competition does really help.
Just to close off with Tim, we had the Paddock Brothers selling their Fintech Company into NASDAQ listing for $100mn, now that’ll bring new attention no doubt, to Cape Town. Is this the kind of success story that you’re trying to get more of and trying to kick on for the Fintech side?
Yes, I think what you’re seeing in the tech space broadly is two things that are really important trends for the Cape. The one is location matters less. Many industrial and commercial companies kind of had to be in Joburg because that’s where all the businesses are, but many, our Fintech and tech companies are servicing global markets and it really doesn’t matter where they are. So, a place like Cape Town with a great lifestyle and quality of life offer, we’re seeing more and more companies say, “Oh well that’s fine, if I can find the developers I need there and I can convince them to stay because it’s such a great lifestyle, then that’s’ where I’ll base myself”. So, that’s been really to our advantage.
The second thing is that the regulatory issues that affect normal companies in many cases don’t apply to tech companies, so they can dodge many regulatory questions that bug other companies in South Africa. We have many companies that essentially don’t sell to South Africans. They just run tech businesses selling to the world out of Cape Town. So, sure they still have challenges around immigration, they still pay tax, but beyond those areas they’re servicing a global market and they’re more about global regulators, not South Africa’s regulatory functions. So that’s another good things where we are able to supply great lifestyle, a good skills base and some great success stories in tech, suddenly Cape Town becomes a rational place for a growing tech company to consider.
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