SA’s other eight provinces must be getting fed up hearing about how the Western Cape is booming, aided by a steady influx of tourists and semigrants from other provinces drawn by its natural beauty, better growth and employment prospects and track record of good governance.
And yet the Western Cape keeps breaking records. Last year, for the first time it passed more building plans by value at R32.7bn than Gauteng, the country’s economic hub, with R29.8bn.
According to the latest census, the Western Cape is the third-largest province, with 7.4-million people, after KwaZulu-Natal’s 12.4-million and Gauteng’s 15.1-million. The province’s economy is smaller than the other two but grew faster (by 2.5% in 2019-24) than Gauteng (1.4%), and KwaZulu-Natal (1.8%) and the country as a whole (1.7%).
So it is no surprise that the Western Cape’s building sector outperformed the other provinces last year, with nonresidential building plans rising by almost 20%, according to Stats SA.
It is often inferred that the Western Cape does better because of the boost it gets from tourism, its buoyant property market and strong services sector, so it is intriguing that business confidence among Western Cape manufacturers, at 51 index points, was 18 percentage points higher than the national average of 33 in the second quarter and convincingly above the province’s own long-term average of 38, as were forward-looking expectations.
This may be because the structure of the Western Cape manufacturing sector is different to the rest of the country in that it has a far bigger agriculture processing sector and a far smaller mining and metals sector.
Legacy issues may also partly explain why the Western Cape’s unemployment rate, at 19.6% in the final quarter of 2024, is markedly below the national rate of 31.9%. For instance, the province did not have to absorb people from any neighbouring traditional homelands after 1994. By the expanded definition, Western Cape unemployment is only 25.4%, followed by the Northern Cape (39.7%) and Gauteng (39.9%). The national average is 41.9%.
Stats SA’s figures show that agricultural employment has grown far faster in the Western Cape than elsewhere over the past decade, as would be expected of a province with a large agricultural sector, but then so has informal sector employment, suggesting the province may have more vibrant township economies.
Part of the explanation may also be that the Western Cape boasts good governance, a well-run capital city and a consistent economic development and investment promotion framework that prioritises the needs of the private sector and aims to ease the cost of doing business. It’s a recipe the national government has mostly shunned.
However, the province’s outperformance does come with a snag. Over the 2020-25 year-to-date period, the Western Cape’s average inflation rate was 0.3 percentage points higher than the national average. In May Western Cape consumer inflation was 3.5% year on year, against the national figure of 2.8%.
The relative strength of Western Cape consumers may help explain this, but property price growth has also been higher than in other provinces, driving up housing costs and rental inflation. Higher municipal rates and greater wage demands, influenced by the province’s higher cost of living, add further to inflationary pressures.
Another snag is that despite being the third-largest province by population, and the one that is growing fastest, the Western Cape receives only the fifth-largest provincial budget allocation from national government, less than either the Eastern Cape or Limpopo. This means the province, 98% of whose funding comes from national government according to the provincial equitable share formula, gets barely enough to keep up with its growing population’s basic education and healthcare needs, let alone to ramp up spending on essential infrastructure.
And yet a big part of the reason for the Western Cape’s outperformance is that it invests heavily in infrastructure. The City of Cape Town does a lot of the heavy lifting. It has a budget rule that stipulates that infrastructure spending must grow at least by inflation plus population growth each year. The upshot is that it is budgeting to invest 63% more in infrastructure over the next three years than Joburg’s R24.3bn, a record R39.7bn.
However, these big plans come at a cost — ask Cape Town homeowners, many of whom are still in an uproar over the city’s 2025/26 budget, which will increase property rates by almost 8%, introduce a new citywide cleaning tariff and link the water and sanitation tariff structure to property values. The final budget has softened the initial proposals, but mayor Geordin Hill-Lewis says it was essential for the city to keep investing heavily in infrastructure, unlike other metros.
“So much of SA cities’ failure comes down to just one thing — the failure to invest properly in infrastructure,” Hill-Lewis told the Financial Mail. In fact, he feels this is the main difference between Cape Town and other metros: “They’re making the active decision year after year to prefer consumption spending over investment spending, and that has consequences over time …We’re determined to make sure that doesn’t happen.”
As welcome as the Western Cape’s stand-alone success is, everyone in SA would gain from broader national progress and co-operation. After all, growth is not so much a competitive as a co-operative game.
• Bisseker is economics writer and researcher, and Smuts economist, at the Bureau for Economic Research.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.