SA cities on Commerce Centres index

21 November 2008

The MasterCard Worldwide Centres of Commerce Emerging Markets Index, a list of 65 cities poised to drive long-term economic growth in more than 30 emerging markets, has ranked Johannesburg 11th, Cape Town 33rd and Durban in 37th place.

According to MasterCard, cities are generally considered to be the leading indicators for national economies, making the study an important barometer of larger global trends and growth potential over time.

“Given the current economic climate, MasterCard is focussed on providing valuable insights that assist our customers in identifying new market opportunities for the future – the Emerging Markets Index is key to that commitment,” MasterCard Worldwide Global Markets president Walt Macnee said in a statement this week.

“By evaluating 65 emerging market cities and their increasingly important role in global commerce, the index offers companies a roadmap for where commerce is headed next.”

Gateway to Africa

South Africa has more cities represented in the index than any other country outside of the Bric (Brazil, Russia, India and China) cities, with MasterCard suggesting that Africa may be entering an era of growth in the global market.

“South Africa’s strong showing may reflect the ongoing opening of Africa to Western products, services and companies,” MasterCard says. “It is clearly a place to watch carefully for new opportunities.”

Presenting a breakdown of the index in Johannesburg this week, T-Sec economist Mike Schussler said that having three cities included underscored South Africa’s regional dominance.

Schussler expressed concern, however, about the high cost of internet and telephone services in South Africa, including downtimes. The cost of importing and exporting was also high, with high transport costs like constraints in the harbours, customs delays, rail and traffic congestion adding to business costs.

His biggest concern was education. He indicated that although the country spends 5.4% of GDP on education, above the world average of 4.7%, South Africa still has a lot of pupils dropping out of school between grades 10 and 12.

“Ghana and Botswana beat us on education. We don’t need more money, we need a better system,” he said.

The index measured cities’ performances based on eight emerging market dimensions:

  • Economic and commercial environment
    Johannesburg, Cape Town and Durban were ranked equally in fifth position on this measurement, which computes the time and costs involved in building a standard warehouse, registering a property, and exporting and importing cargo. Corruption and foreign bond ratings are included in this dimension. The three top cities were Santiago, Kuala Lumpur and Budapest.

  • Economic growth and development
    This measurement was made on the basis of a number of factors: GDP growth; GDP per capita; exchange rate volatility; inflation rate; FDI inward; direct investment abroad; exports of goods and services; total trade of goods and services; urban population growth rate; and city/metropolis population as a percentage of total population. Five Chinese cities took the top five positions. South African cities scored badly on this measure, with Johannesburg coming in at 59th, Cape Town at 62nd and Durban at 64th.

  • Business environment
    This dimension was judged the most significant by the research panel, with Cape Town, Durban and Johannesburg being placed together in the first position. The criteria here were shareholder protection laws and corporate tax burdens.

  • Financial services environment
    There are six indicators on this measurement: total value of equities trading; total value of bond trading; total number of derivative contracts; total number of commodities contracts; financial services network; and measurements of banking services and currency exchange regulations. Johannesburg, which reported the highest total bond-trading value, was placed third in this category, behind Mumbai and Shanghai. Cape Town was listed 39th, and Durban 50th.

  • Commercial connectivity
    This dimension measures the connectivity of a city to other world and regional commercial centres by air, airline passenger volumes, the presence of foreign consulates/embassies and international hotels and convention facilities, and international trade. Johannesburg was placed 18th, Cape Town was 48th, and Durban 59th. Top of the list was Shanghai, Bangkok and Beijing.

  • Education and IT connectivity
    Chinese cities scored high on this measurement, with Johannesburg slipping to 56th position, with Cape Town sitting at 51st and Durban at 55th. This dimension measures the intensity of education activities, as well as national levels of internet and telecommunications connectivity. Cities lower on the scale were affected by a lack of medical schools, low number of internet users, and low numbers of broadband subscribers.

  • Quality of urban life
    The criteria of measurement on this dimension were the limitations on personal freedom/media and censorship; medical and health considerations; public services and transport; recreation and culture; in addition to climate, mortality, and the presence of world heritage sites. Latin American and eastern European cities were the top performers here. South African cities were hampered by the infant mortality rate and life expectancy at birth indicators, with Cape Town coming in at 10th position, Durban at 12th, and Johannesburg at 15th. The three cities did “extremely well” on media freedom, medical and health conditions, recreation and culture, and climate indicators.

  • Risk and security
    Personal freedom and “personal physical city” were the criteria by which this dimension was measured. Budapest and Warsaw were the top two performers, with Cape Town falling into 5th position, Durban at 6th and Johannesburg at 11th position. While the South African cities scored highly on the democracy index, travel warnings and record of natural disasters indicators, they didn’t score well on crime and law enforcement indicators.

  • Emerging market influence

    With the International Monetary Fund expecting global economic growth to be primarily driven by emerging economies at an unprecedented rate of 12 to 1 compared to rich-world economies, MasterCard says that emerging markets are becoming increasingly important investment and business centres.

    This is clear when one sees that China has 15 cities on the index, followed by India (with eight), Brazil (with five) and Russia (with four) – with the leading city in each country being Shanghai, Mumbai, Sao Paulo and Moscow respectively.

    The Hungarian capital Budapest ranks third on the index, helped by its quick embrace of the free market system following the collapse of the Soviet Union and its influence in the region.

    A former world capital, Budapest was among the first Eastern European cities to trade with the West following the Cold War, and is benefitting from its first mover initiatives, MasterCard says.

    “As the current financial environment shows, globalisation is a part of today’s economic reality – capital, talent, technology and even intellectual property now move seamlessly across borders and nations,” said MasterCard Worldwide Centres of Commerce programme director Michael Goldberg.

    “Emerging market cities will play an increasingly role in global commerce and may provide unique market opportunities for businesses in the face of changing economic times.”

    SAinfo reporter and City of Johannesburg

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