Discussion Document 12

Cities contribute to national prosperity because of their role in sharing information, generating ideas and fostering innovation. Having a densely populated ecosystem where people and firms are drawn together, fosters an environment of competition, collaboration and knowledge creation. South African cities, however, have not been doing well and could do better. Unemployment, poverty and inequality are very high by historic and international standards; the formal education and skills of most urban adults are poor; and rates of entrepreneurship and business growth are low. These challenges can undermine confidence, discourage productive investment and hold back economic growth, at least in the short term. What is the key to unlocking lasting progress in cities?  

This research asks whether cities in South Africa could contribute to more growth and job creation, nationally. The paper draws on international research in urban economics and combines it with new empirical evidence to consider the recent performance of South African metropolitan areas in relation to each other and compare them with towns in rural areas. 

• Why are firms in cities more productive? And does the productivity of firms in South African cities increase with the size of the city? 
• Which issues are preventing cities from performing optimally? And what is the relationship between firm productivity and metropole location? 
• Which city is experiencing the highest growth in employment and why? 
• How do shopping mall agreements influence market entry of new businesses? 
• How can firm level productivity be measured? And which data can be used to do so? 
• What are the bottlenecks to economic growth and what are the policy implications of this research?  

This paper contributes to research on what productivity means in an economy and how cities matter in generating economic growth and productivity. Important policy insights emerge, regarding the contribution of large firms and the specialisation of industries in various cities, as well as how cities can manage bottlenecks that contribute to poor economic growth.