Finance and Economic Opportunities

The response below addresses the four parts of the question in turn.

[a] What support does her Department provide to technology companies already based in the Western Cape?

The Western Cape has a well-developed local network of technology organisations and is home to major multinational technology companies, such as Amazon, and exciting ‘scale-ups’, such as Luno, Yoco, Jumo and SweepSouth, as well as many ‘start-ups’.  The province’s technology sector is dynamic and evolving, comprising many tech incubators (including Africa’s oldest incubator), accelerators and South Africa’s leading venture capital firms. 

The Department’s response to the technology sector has therefore been multifaceted:

• Within the Economic Planning branch [Programme 5], the Digital Economy unit has the mandate to support and stimulate the usage, readiness and accessibility of digital technology by citizens and businesses, and the goal is to ensure the Western Cape remains Africa’s tech capital. 

• The allied BPO (Business Process Outsourcing) sector is supported though Programme 7: Skills Development and Innovation, largely through stipends to encourage youth employment.  
• Technology is a central component to the ICT and Finance sectors.  Programme 3: Sector and Trade Development includes support for these sectors through the Services Sector Unit which provides sector development support through policy directives which promote the ease of doing business, providing research and sector insights to inform their  recovery and growth.  Additionally, trade and investment development are provided through industry action platforms to engage stakeholders and the identification and coordination of catalytic sector interventions.
• WESGRO provides investment promotion and support.

Wesgro has given significant attention to promoting the local tech sector and strengthening the ecosystem in which technology companies operate. Wesgro is supporting the tech sector (and technology companies) already based in the Western Cape by:

• Promotion and attraction of foreign direct investment to increase investment into the Western Cape technology sector, by spotlighting and promoting the strong tech capabilities of the Western Cape, for example through:

• • Pioneers Magazine – Wesgro have led the development of four editions of Pioneers Magazine, profiling over 80 tech companies leading the way in innovation in the Cape.
  • '10 Reasons to Invest in Tech in Cape Town and the Western Cape' - development of promotional video and accompanying targeted media campaign to reach international investors and communicate the province's value proposition.
  • Events such as:
    • Cape Health Tech Week: providing practical insights and insider’s views across topics.
    • Cape Town Stockholm Connect: The Silicon Cape Initiative, in partnership with Wesgro, the City of Cape Town, Invest Cape Town, Loudhailer, Business Sweden and the Embassy of Sweden came together to launch Cape Town/ Stockholm Connect. The event was a platform that brought together companies, developers, customers, investors, entrepreneurs, and institutions from across Cape Town and Stockholm via a series of activities, with the overarching goal of strengthening ties and facilitating cross-border collaboration between Sweden and South Africa.

• Convening and collaborating with stakeholders to strengthen the ecosystem:

• • Convening and contributing to conversations around challenges facing the tech sector, including skills development, a more enabling visa regime and other legislative and regulatory challenges.
  • Participation in forums such as the Start-Up Movement (formerly Start-Up Act) which drive awareness for the development of policy that encourages the growth and development of innovative and high growth enterprises in South Africa.
  • Board representation on Silicon Cape, the organisation that brings together tech entrepreneurs, developers, creatives, angel investors, and VC's passionate about the role the Western Cape tech sector can have in the future of South Africa.
  • Convening of subsector clusters where none exist – e.g. Wesgro convened an Edtech meet-up to discuss on challenges, and opportunities and agreed to action these with support from stakeholders.
  • Ongoing collaboration with partners such as the Digital Economy unit of DEDAT, Silicon Cape, Cape Innovation and Technology Initiative [CiTi], CapeBPO and Invest Cape Town to grow and support the tech sector in the province.

• Growing the export of services through:

• • Services export support including training & mentoring, technical support, export missions and access to strategic networks.
  • Wesgro launched the Cape Trade Portal (www.capetradeportal.com) in February 2022, to expand the reach and appeal of Wesgro export support services offered, both to Western Cape exporters as well as international buyers. The Cape Trade Portal acts as a marketplace to connect Western Cape exporters to international buyers 24/7 and a resource centre for exporters (including export training, intelligence, content and tools).

 [b] How does this support contribute to the expansion of the Western Cape technology sector?

Strong Foreign Direct Investment inflows into the Western Cape over the period 2011 – 2021 are testimony to the Western Cape’s offerings and future orientation, with the communications, renewable energy, and business services’ sectors composing the top three sectors for inward FDI over this period (as measured by CAPEX; Source: FDI Intelligence, 2022].

To contextualise this, inward FDI into the province's communications sector totalled R55.24bn over the period 2011 – 2021, equivalent to 41.02% of total global inward FDI received. The renewable energy sector followed at a value of R17.99bn (equivalent to 13.36% of total global inward FDI received), with the business services sector in third position with a value of R16.73bn [12.42% of total global inward FDI received). At a more granular level, the software and IT services sector was the recipient of 61 projects with a total CAPEX value of R13.17bn of inward FDI over this period, with more than 55% of this capex value and 33% of the projects invested over the period 2019 – 2021 alone, affirming global tech companies growing interest in the province's service offering.

The Western Cape also ranks relatively favourably from an African context, with the Province one of the top 3 destinations for inward FDI into Africa’s business services sector; one of the top 5 performers for inward FDI into Africa’s communications sector; and the third largest South African destination for inward FDI in Africa’s renewable energy sector.

[c] What is her Department doing to attract new technology companies to the province?

Wesgro supports technology investors wanting to do bring their businesses to the Western Cape, assisting wherever possible with facilitating these investments. Their efforts to achieve this are led by the Investment Promotion team, which currently has one dedicated portfolio manager.

The tech promotion activities include, but are not limited to:

• Global marketing initiatives such as the Global Tech Positioning Project – working with DEDAT, the City of Cape Town, CITI, Silicon Cape, LaunchLab and Startup Bootcamp, Wesgro developed the “Africa’s Tech Capital” brand to represent the tech industry in the Cape. This is used by multiple stakeholders in government and across the Tech ecosystem in the Western Cape to promote the region as an investment destination.
• '10 Reasons to Invest in Tech in Cape Town and the Western Cape' - development of a promotional video and accompanying targeted media campaign to reach international investors and communicate the province's value proposition.
• Participation in international tech events, such as:
• Vivatech [Paris, June 2022]. The Wesgro exhibition stand at Vivatech promoted the Africa’s Tech Capital brand. There was significant engagement with European tech eco-system partners and with potential investors, both via B2B meetings at the conference and a dedicated investor dinner hosted by Wesgro and the South African Embassy in France.
• Africa Tech Festival [Cape Town, November 2022], an international conference focusing on technology and telecoms, the largest and most influential tech and telecoms event on the continent. Wesgro will be participating to position the destination for tech and facilitate connections between local tech companies and global investors, partners, and clients.
• Africa Games Week [Cape Town, 1 – 3 December 2022], a business event in the video gaming industry to connect, engage and grow the African Game Industry. Wesgro will be supporting companies in the games industry by connecting them to potential clients.

 [d] What is the forecasted growth of the Western Cape technology sector relative to other sectors over the MTEF period?

The measurement of the digital economy can be challenging, and the methodology can differ from country to country, especially in terms of GDP contribution. Tech (including ICT) is a component of multiple industries throughout the economy, including manufacturing, business services, trade and telecommunications and as such it is not listed as one of the 10 main industry divisions in the Standard Industrial Classification (SIC) system. This international system of classification provides the backbone of international economy statistics.  Accordingly, estimates of the value of the technology sector and the digital economy range depending on the definition used. For example, the global digital economy had been estimated at between around 4.5% and 22.5% of world GDP [1].

The South African digital economy was quantified at 6.51% contribution to GDP in 2020, having grown at an average rate of 4.8% per annum since 2013 [2].  The growth is projected to be 7.9% per annum to 2025 and accelerating to 10.5% per annum from 2025 to 2050 [3].  An alternative view is that the growth in the digital economy was expected to be 12.7% per annum from 2017 to 2024 [4].   This figure correlates with an estimate that the forecast average IT market growth for 2022 to 2026 will be 12.1% year-on-year [5].

For a Western Cape view, as a proxy, DEDAT have considered the forecasted growth rates [GVA] for the following sectors [i] post and telecommunications, [ii] finance and insurance, (iii) other business activities and (iv) electronic, sound/vision, medial and other appliances.  Together these account for 24.6% of the total GVA, with a projected growth rate of 1.9% versus the balance of the market at 1.4%, and overall provincial growth of 1.5%.  Key areas of the tech sector are growing at a rate higher than these figures.

[1]  Source: K4D, The size and growth potential of the digital economy in ODA-eligible countries, 2020