Companies in the Western Cape, as well as the rest of South Africa, should start to globalise and diversify both the tangible goods they produce and the services they provide, says Western Cape investment and trade promotion agency Wesgro international trade manager for Africa Michael Gamwo.
Companies should globalise by either exporting their products or by opening new branches. However, he warns that companies should not only focus on marketing their goods and services in the traditional markets of Europe, America or Asia, but also on marketing their goods and ser- vices in Africa.
There is huge demand for South African goods and services from the rest Africa, but South Africa’s business marketing drive in Africa is mild compared with the aggres- sive approach of European, Brazilian and Asian businesses.
Some of South Africa’s larger organisations, such as cellphone operators MTN and Vodacom, digital satellite television operator MultiChoice, food retailers Shoprite and Woolworths, wholesaler Massmart and food franchises such as Nando’s and St Elmo’s, are already operating in the rest of Africa.
Africa is growing and the region has become the second-largest destination for Western Cape exports at R10,2-billion, after Europe at R23,5-billion. Africa is also the third-largest source market for Western Cape imports at R20,1-billion, following behind Europe at R25,6-billion and the Middle East at R22,8-billion.
“It is evident that the trade relationship between the Western Cape and Africa is important to the strength of the Western Cape economy and, therefore, intra- Africa trade should be encouraged,” says Gamwo.
However, government departments also need to change their approach in the promotion of markets for South African goods and services. Gamwo notes that this applies particularly to the Department of Trade and Industry (DTI), whose programmes are still quite Europe orientated.
For example, on the Depart- ment of Trade and Industry’s national pavilion list for 2011/12, which provides a platform for South African companies to exhibit their products to poten- tial buyers in other countries, only 2 out of the 24 national pavilions are planned for Africa. The remaining pavilions are in Europe, Asia and America, Gamwo points out.
Meanwhile, Gamwo says that local small, medium-sized and microenterprises (SMMEs) should also consider expanding or diversifying their operations.
He emphasises the role that both big and small businesses play in providing employment and boosting the country’s economy.
For this reason, the Western Cape established structures, such as the Real Enterprise Develop- ment Door initiative, which provides business advice to new and existing businesses. The Small Enterprise Develop- ment Agency was also established to focus on SMME support.
Wesgro provides support for SMMEs in the Western Cape. It also aims to attract foreign direct investment to the province, to expand its existing investor base and to facilitate access to foreign markets for companies based in the province.
Gamwo notes that there are some challenges facing South African industries. Locally, there is a lack of access to finance, proper business plans and a lack of awareness of existing government support structures, which results in failed SMMEs and lower job creation potential.
International challenges include a lack of export drive by business owners, as well as limited access to, or a lack of awareness of, business opportunities in foreign markets.
Business owners are also unwilling to take the risk of venturing into foreign markets.
Further, Gamwo points out that the only direct flights to Africa, from Cape Town, are to Namibia and Angola. These flights are also irregular, which make it difficult and expensive for businesses based in the Western Cape to access African markets.
Similarly, this proves to be a challenge to the African business market, which wants to explore opportunities in the Western Cape. As a result, most African business- people only do business in Johan- nesburg, because that is where their flights land.
In addition, rising electricity and fuel costs will increase production costs for exporters and the strong rand, combined with increasing competition from Europe, Asia and the US, could lead to lower demand for Western Cape exports in these markets.
However, Gamwo is optimistic that the strong demand from Africa for South African products and services could compensate for the negative effect of the strong rand.
Nevertheless, South African exporters need to focus on improving the quality of their products and services to their foreign clients and be more proactive in terms of marketing their products in the international market, he states.
Western Cape Economy
The Western Cape economy is dominated by the services sector, which contributes 28% to the gross domestic product (GDP) of the province. This includes finance, real estate and business services.
This is followed by the manufacturing sector, which contributes 16% to the province’s GDP, and which is led by the clothing and textiles industries. This sector alone employs about 170 000 people, but is facing a lot of pressure from competing Asian imports.
Steel production from Saldanha Bay is also a key manufacturing activity in the Western Cape.
Meanwhile, wholesale and retail trade, hotels and restaurants contribute 14% to the region’s GDP, followed by other sectors such as transport, agriculture and government services.
Top international exports from the Western Cape include agricultural products, downstream petro- leum products, agroprocessed products, tobacco, chemicals and machinery. Although not often captured in statistics, services exports comprise an important part of the Western Cape’s overall exports, predominantly its exports into Africa.
Further, Gamwo believes that the tourism industry in the Western Cape is going to flourish, following exposure from the World Cup. On the heels of renew- able energy, agribusiness, infor- mation technology software and services, and oil and gas and engineering services will be the biggest potential growth areas for the Western Cape.
The province will service the needs created by the booming oil and gas activities along the West Coast of Africa, in coun- tries such as Nigeria, Angola, Equatorial Guinea, the Demo-cratic Republic of Congo, Chad and Gabon, which, collectively, produce six-million barrels a day of oil.
This will create more jobs for South Africans in these countries, as well as create additional business opportunities for South African companies.
It is estimated that an oil rig docked at the Port of Cape Town for about eight weeks for refurbishment and repairs contributes about R200-million to South Africa’s current account and provides much-needed jobs, says Gamwo.
Further, he sees high-tech industries, software applica- tions, innovative business ser- vices, call centres, the fashion industry, advertising and film production slowly increasing their contribution to the province’s economy in 2011.