Wesgro is the official Destination Marketing, Investment and Trade Promotion Agency for the Western Cape, located in Cape Town. They are the first point of contact for foreign buyers, local exporters and investors wishing to take advantage of the unlimited business potential in the region. We caught up with Nils Flaatten the CEO to get the inside track on where the best investment opportunities in the cape exist.You have been heading Wesgro for the past four and a half years and your mandate is looking to rebrand the region and show the diversity of opportunities available. Could you please tell us about your mission, what you have achieved and what you wish to achieve in the future?
In the last four years we have gone through quite a big transformation. Four years ago we were only a Trade and Investment promotion agency. Now we are responsible for Film, Tourism, Trade and Investment. I think part of what we have been trying to do has been lifting the profile of the Western Cape on the Tourism side. In tandem with that is our objective to make the most of opportunities that lie within our jurisdiction from a business point of view and project them to a global audience. That has been a big part of what we have done. Around ten years ago the agency realized that Cape Town was uniquely positioned to become a springboard for doing business into the West Coast of Africa. At that stage not many people were focused on the West Coast. We have been taking, for the last ten years, trade delegations into countries such as Angola, Democratic Republic of Congo, Cameroon, Nigeria, Ghana, Ivory Coast and Senegal. We have tried very hard to position the city as this springboard. Interestingly in the last two years four of the world’s top ten fastest growing economies were on the West Coast of Africa. It was a bet taken by one of my predecessors and this certainly paid off. Something that I realized early on in my term was that we needed to get closer to our clients. In the last four years we have worked very hard in order to get closer to the Cape Town and Western Cape clients. We have moved away from this notion of business because it is really a collective of very stratified layers of companies. The first people we started speaking to and getting close to were lawyers and accountants in order to understand what their deal-flow was and where and with whom they were working. Through those relationships we cross-sold our services into domestic and international businesses. In Cape Town there are a number of listed companies on the Johannesburg Stock Exchange that have proven to be some of the key drivers for Foreign Direct Investment (FDI) to the rest of the continent. The big group that people will have spoken to you about will have been retailers. All of South Africa’s top listed retailers are based in Cape Town. In tandem with that, these companies go cross-border, working very closely with listed and unlisted property companies, logistics, distribution centers to create a supply chain in these places. We also have a strong number of investment companies that are listed on the stock exchange and that have very significant shareholdings in agro-processing, engineering, oil and gas, logistics, ICT and some other listed financial instruments as well. We have a disparate group of companies in the manufacturing sector that either make or distribute agricultural, automotive and heavy-lift equipment. What happened four years ago is that the first wave of companies went to set up companies cross-border with their lawyers and accounting services trying to leverage on their global clients. More and more, South African companies have started to go cross-border, led in particular by retailers and hoteliers. Investment decisions to build a hotel or a shopping center which is really a large capital expenditure with FDI flow resulting in two or three stimulated waves of export resulting in benefits to the domestic economy. Imagine a decision to build a hotel. The first step is to put in lights, beds and elevators which is followed by all goods and services that are needed to grow the business and then a company will go through refurbishment and acquire bigger products sets. Interestingly, global FDI has declined quite radically since 2008/2009. What has increased, however, is global trade. Therefore, I think our companies are in sync with this and there will be a deepening of interests across the continent and in other high growth areas such as the BRICS, UAE, Turkey, Mexico and Indonesia. Those are some of the fundamental things that have been happening on a large scale. We’re also on the cusp of some interesting developments around the Oil and Gas services sector. We received an operating permit from the President of South Africa last October to create an Oil and Gas supply base in Saldanha Bay. That will do two things: 1) the fabrication, maintenance and installation of rigs from the oil fields of West Africa and countries such as Angola, Ghana, Nigeria and more recently Tanzania and Mozambique, and 2) going through the layers, we have tried very hard to get some of our medium sized companies to get access to national government incentives which look at deepening the industrial and manufacturing capacities, and process improvement, etc. While we have helped them access that funding in order to improve their plants, we have also started taking them on trade missions. We focus very heavily on Africa, but our challenge in this province is that for a thirty or forty year period, our biggest trade partner has been Europe. The UK, Netherlands and Germany over that period have been our biggest export markets, sources of FDI and import markets after the importation of crude oil. We are still linked very heavily with the Eurozone. And although their economies have stalled, and will not grow more than 1-1.5% in GDP, they are still massive in volume. We have also tried to deepen our penetration of the U.S. market and this has been facilitated by the African Growth and Opportunity Act (AGOA). It is a unilateral trade facility for South Africa but the country has also invested in some high growth markets in Latin America such as Brazil and Argentina. We are starting to tackle some niche opportunities in Panama and Peru. We have done a lot in the gulf as well. The interesting thing about these markets is that there always seems to be a correlation between Tourism, Trade and Investment. The Tourism teams may have key markets that they are in, and markets that they want to develop, and these are consistent with the work that the Trade and Investment promotion team are doing. We always say that a tourist becomes a trader and investor. This is very clear to us. About two years ago, we acquired a mandate for Film promotion and we realized that this industry plays an integral part in making people your destination attractive from a Tourism perspective. Currently, we have Sean Penn shooting a movie as well as season four of the Homeland TV series being shot here. Sasha Baron Cohen and Penelope Cruz are also shooting movies here to name a few. That process attracts attention to the destination of the movie. People will say: “that’s interesting! I want to go there”. In certain instances, the scenery in the movies will be in Cape Town so that is helping us to get the audience to immediately recognize the key landmarks and areas in the province. It would seem that in those terms there is a large effort to make the province competitive. The Film industry does not succeed unless you are very competitive in terms of your incentives. Could you tell us a bit more about these incentives in order to make the province competitive?
I think the national government’s incentives in film are very competitive. This is the feedback we have received from Hollywood studio bosses. We have had a large number of them coming into the Western Cape in the last year and a half. That allows us to compete with other film sectors. We have gone through a large transition in the last five years. We are no longer a location. We have a great diversity of location in such close proximity to Cape Town. We are now a full services suite and we are involved in some radical projects in animation and electronic gaming. We also have the people which can shoot and put the productions for a movie together. In fact, we are at the cutting edge of using technology. Specifically, we have a film studio and hopefully in the future we will have another constructed here. We have editors, the show runners and producers. Therefore, we have a real depth of talent in our film industry. The incentives combined with that have made it a no-brainer to come shoot here. And I think we will see an intensification of productions in the next two to three years. June, July and August have typically been a ‘dead’ season because of winter. Interestingly, both in Tourism and Film we have just seen a very busy winter. Once we get the data and we look at the numbers, we think that we might be losing this stigma as a non-winter destination. You spoke of diversifying and moving away from the winery, Table mountain and beach image of the Western Cape. This probably has been a tough season with Ebola. What have you done to try and counter the downward surge in numbers coming here?
First of all we put together an infographic to illustrate how Ebola is contracted, its symptoms and which countries in Africa had infection rates. We sent this to over 3,000 of our outbound operators in every market that we have been to try to create awareness. We also did a survey to find out how many companies had cancelled trips or lost money and who would continue to market the Western Cape and South Africa in next twelve months. About 86-88% of our operators declared they would continue to market the Western Cape. However, 63% said they had had cancellations. The big challenge for us was to make the global audience realize that Africa is not one country – it is 54 countries. In fact, some of the countries that have been very badly hit by infection rates are much closer to Madrid, Paris and London than they are to Cape Town. We have tried to use our global media network to get these stories out. We need an antidote to this perceptive issue around the continent. We’ve got some good results but it’s a big story across the world and unfortunately the infections haven’t stopped, rather, they have continued to grow. When President Obama talks about one of the biggest epidemics of his time, a lot of people are going to listen to that. We are not in these countries so we do not know how it is being contained, managed, or if there are more people getting infected. It’s a very big issue for us. And if it’s an issue for us, it’s undoubtedly an issue for the smaller African states who rely heavily on airplanes flying into their cities so that they can bring business people and tourists. I think all of us on the continent have been hit really hard by this. In terms of your Tourism numbers what would be the number of international vs. African tourists coming into the Western Cape?
No. As I mentioned previously, these are mostly our biggest Trade partners of the Global North: United States, the Eurozone and Japan. We also depend on some key niche markets which have seen some good growth: Sweden, Denmark, India, the Gulf countries and Argentina. In particular, Argentinians come here for sports tours: Rugby and Netball. A large part of these come to the Western Cape. In terms of a company coming to South Africa and wanting to do business, one of the key platforms is finding a local partner. Are you able to bring partners together and how do you do this?
Without a doubt. We must play to our corporate citizenry right. We have driven ‘KYC’ (Know Your Clients). We are connected with them at a high level and we know what kind of space they are in. Therefore, when we meet international businesses we can make suggestions. You will notice that we do not have a glossy magazine of twenty projects that we would like to promote. We are far more responsive and as we meet people we try match-make them together and get deals going. There are certain regulatory things that will help you in the course of your year. The fact that the government is going through a renewable energy process called the ‘Renewable Energy Independent Power Producers’ Procurement Program’ (REIPPPP). There are five rounds to that initiative and we have just closed round four. That has given us a spike on FDI. I don’t think that it will stay there because there is a limited amount in energy that will be put into the grid and the government doesn’t seem to be saying that we will be doing a second process. In the Oil and Gas sector, the developments in Mozambique are going to be a huge opportunity for us as well. We did not touch on the subject of smaller sized companies. There is a lot happening in ICT. This week we have had three or four functions where different organizations have been dealing with entrepreneurship and innovation by putting smaller companies through accelerators. And we are getting good results. There is a lot of intellectual property that is being generated in the city of Cape Town. We are a living laboratory in the sense that we’re part of the developed world but there are also many parts of us that are in the developing world. We know how to apply technology to leapfrog problems in everyday life. I think that in Retail Banking we are one of the most sophisticated in the world. Some people find it mind-boggling that for over a decade everytime I have used my bank card at an ATM, I immediately get an SMS to tell me what I have withdrawn and what my balance is. That is pretty old-hat in South Africa. There is a lot of innovation happening and tucked in there is a lot of niche engineering companies doing things in medical devices, automotive components, rolling stock and electronics. You compete, in a way, with Johannesburg and Gauteng for global investors in order to situate their companies here. How have you found that dynamic of competition and how does it play out given you all want the best for South Africa?
Our economy is very different to the Gauteng economy. 70% of our regional GDP comes from the tertiary sector. What I fail to mention is that we have a huge asset management sector which is driven by the insurance and brokerage companies. There is no doubt that Johannesburg is the primary financial market, but we take care of South Africa’s long-term prosperity by managing those assets. Some changes to the financial management industry has allowed investment managers to invest in a much wider range of asset classes. All that has arisen from that has been private equity. There are, therefore, a lot of institutions going into private equity. I mentioned the investment companies that are really driving acquisitions and enterprises cross-border. Particular sectors such as: Agriculture, Logistics, Media and Retail will originate here in Cape Town. It is never a question of Cape Town versus Johannesburg. For example, we have had many international clients come and speak to us. They would express an interest in investing in Manufacturing and Automotive industries. We would say that they must go to Johannesburg and not here in Cape Town because they would be closer to their market. Therefore, we have quite a good cooperative spirit between organizations in Johannesburg and Cape Town. We often refer things back to each other. For us it is not a question of beating Johannesburg but how to get investment and growth into our country, and to do it sustainably and profitably. If we can’t see that happening in our city and province, we would advise these people to invest elsewhere. The worst situation would be somebody investing in Cape Town, and twelve months later say goodbye to them as a failed investment. What are the biggest challenges for Wesgro and how do you feel you are overcoming these challenges?
Firstly it would be air access. If we had a greater regional network into the continent, we would be able to attract new airlines from Europe, North America and South America. I think OR Tambo (Johannesburg International Airport) has that advantage over us. I would also like to see the government focus more on the visa regime. It needs to get more efficient and bring predictability to that. We are concerned about the supply of electricity. There has been a delay in the national utility companies’ generating capacity. We need more policies and business certainty. I think there is a need for reviewing a number of pieces of legislation that are of growing concern. You are dealing, however, in a market with the third most stable financial system, that is tenth in the world for protecting our directors and investors. Our courts work. If you are involved in a dispute, you will get a judgment or remedy. Price discovery is transparent. Market making is easy. I think things that play to our advantage. I personally believe that South Africa’s long-term economic prospects will be determined by how we do business with the rest of the continent in the next five years. Africa’s biggest problem is intra-regional trade. This sits at about 11% compared to over 70% in the European Union. We need to be able to move goods, and move them faster because Africa, in ten years time, will have a population of over one billion in fifty-four countries. 60% of the world’s agricultural space is on this continent. The challenge is moving seeds and material, as quickly as possible, into agro-processing sector. Infrastructure is the key issue for Africa over the next decade. Minister of Trade and Industry, Dr Rob Davies spoke of the importance of public-private partnerships. Is that something you feel is needed more in infrastructural development in South Africa?
Not only here, but across the whole continent. Governments have to start looking at regulatory innovation, reform in terms of public finance laws. They are far too cumbersome and outdated. They need to innovate around those kind of issues. If you are going to start a complicated $500 million bridge development; you will have an international development bank involved, an EXIM bank, and a guarantee issuer. Sometimes, our finance laws are a relic of yesterday.
In terms of the ability of Western Cape to go to market for funding, has it been successful in issuing bonds and generating provincial finance capacity?
The state government is restricted from issuing bonds. Local authorities, however, can do that. The city of Cape Town has been to the capital markets twice. We must remember that when you raise capital it is still a debt. I think as a regional government we focus more on revenue collection and cost control. I think they have done quite well on that. What is it about your job that you enjoy the most and if there were one problem you would like to see being solved over the next few years what would it be?
If there is one problem I’d like to see solved, it is the power problem in Africa. We spoke of the power shortages that we have in many of our large metropolitan cities. This obviously speaks to business continuity. However, I do not think we speak enough about energy poverty. We do not speak of the people who need to trek for miles in order to find sources of energy. If we could fix that in a decade, it would be such an accelerator of growth. Why do I get up in the morning? Because it’s a tough job and you get beaten up all the time. However, every now and then you match people together and you see them fly and make a transaction. Or you are able to bring a group of tourists in and push them into part of the province they have never seen. They come back with big smiles and realize, as I have, that our province is not about tourist attractions - it is about our people. If you could describe what the Western Cape is about, what three words would you use?
I would say beauty, diversity, people, food, wine, natural attractions, beaches and innovation. For example, we have a company here called Naspers. It is a $28 billion a year new media multinational. It is all about innovative things in the business. We do not need to stand back. In many markets we are not playing catch-up - we are already competing.