Cities Economic Outlook 2026: A Deep Dive into South Africa's Urban Economies

The Human Sciences Research Council (HSRC) has released its highly anticipated Cities Economic Outlook 2026 report, offering a comprehensive analysis of South Africa's eight metropolitan economies. Drawing on the innovative Spatial Tax Panel dataset, this publication tracks over a decade of employment dynamics, industrial transformations, population shifts, and the uneven recovery from the COVID-19 pandemic. Produced through a collaboration between the HSRC's Spatial Economic Activity Dynamics South Africa (SEAD-SA) program and the National Treasury, the report underscores the critical role metros play in national growth.

South Africa's metros—Cape Town, Johannesburg, eThekwini (Durban), Ekurhuleni, Tshwane (Pretoria), Nelson Mandela Bay, Buffalo City (East London), and Mangaung (Bloemfontein)—account for a disproportionate share of the country's GDP and employment. Yet, as the report reveals, these urban powerhouses are grappling with structural challenges that threaten to hinder broader economic progress. By examining granular data from tax records, including payroll (PAYE) submissions for employees earning over R2,000 monthly, the Spatial Tax Panel provides unprecedented insights into sub-metro level activity, filling long-standing gaps in spatial economic intelligence.

Employment Trends Over the Past Decade: A Faltering Trajectory

One of the report's starkest findings is the deceleration in metropolitan employment growth. Over the last ten years, job creation in metros has not only slowed but fallen below the national average. This marks a reversal from earlier decades when cities were engines of expansion. Factors contributing to this include stagnant higher-value sectors like manufacturing and tradable services, which have seen minimal growth or outright declines in most metros.

For context, South Africa's overall unemployment rate hovers around 33%, with youth unemployment even more acute. Metros, home to skilled labor pools and infrastructure, should theoretically outperform non-metro areas. However, the data shows a divergence: while some cities have absorbed population influxes, job opportunities have not kept pace, exacerbating inequality. The report highlights how this lackluster performance constrains national economic performance, as metros represent half of population growth yet struggle to deliver proportional employment gains.

• Employment in Gauteng's three metros (Johannesburg, Ekurhuleni, Tshwane) has seen losses in key manufacturing sectors.
• Non-metro areas, often reliant on agriculture or informal trade, have occasionally outpaced urban centers in relative terms.
• Overall, metro jobs grew slower post-2015, influenced by energy crises, logistics bottlenecks, and global trade shifts.

Cape Town and Tshwane: The Exceptions Defying the Trend

Not all metros are equal in their struggles. Cape Town and Tshwane stand out as the only cities posting positive employment growth over the decade. Cape Town's tourism rebound, tech sector expansion, and renewable energy investments have bolstered its resilience. Tshwane benefits from government-linked services and proximity to administrative hubs.

In Cape Town, services like finance and business process outsourcing have driven gains, with the city's economic complexity index showing diversification beyond traditional industries. Tshwane's growth is more modest but steady, supported by public sector stability. These cases offer lessons: proactive infrastructure investment and sector targeting can yield dividends even in tough times. However, even these leaders face pressures from rising living costs and spatial inequalities.

Deindustrialisation and Shifting Industrial Patterns

Deindustrialisation emerges as a recurring theme, with manufacturing employment declining across most metros. This mirrors global trends but hits South Africa harder due to electricity shortages (load-shedding) and port inefficiencies. The report details how tradable goods sectors have contracted, while non-tradables like retail and construction provide limited high-skill jobs.

Gauteng metros exemplify this: Johannesburg and Ekurhuleni lost significant manufacturing jobs, shifting toward logistics and services. The analysis warns of 'hollowing out' in middle-skill occupations, polarizing the labor market between low-wage informal work and high-skill tech roles. Policymakers must address this through industrial policy revival, focusing on export-oriented manufacturing and special economic zones.

Post-Pandemic Recovery: Uneven and Incomplete

The COVID-19 pandemic amplified existing vulnerabilities, but recovery has been patchy. While metros absorbed much of the population flight from rural areas, job rebounds varied. Cape Town led with tourism revival, but Durban (eThekwini) lagged due to flood damage and port issues. The report uses Spatial Tax Panel data to show how remote work temporarily eased spatial pressures but failed to sustain long-term gains.

Unemployment spiked universally, but metros' formal sectors recovered slower than informal rural economies. This unevenness underscores the need for targeted stimulus, such as skills retraining and SME support, to bridge the gap.

Photo by Danique Godwin on Unsplash

Spatial Mismatch in Gauteng: Jobs and People in Disconnect

Gauteng's metros illustrate 'spatial mismatch'—where jobs cluster in northern suburbs while workers reside in southern townships. The report quantifies this divide using postcode-level tax data, revealing commute burdens and underutilized labor pools. For instance, Ekurhuleni's industrial east contrasts with Johannesburg's service-oriented north.

Solutions include affordable housing incentives, public transport upgrades, and mixed-use developments. Without intervention, this mismatch perpetuates inequality, as low-income residents face high transport costs eroding wage premiums.

Urban Wage Premiums and Economic Complexity

Despite challenges, metros offer a 20-30% wage premium over non-urban areas, driven by productivity spillovers. However, this premium is eroding in deindustrializing cities. The report introduces economic complexity metrics, showing Cape Town's diversification into knowledge-intensive services, while others remain commodity-dependent.

Building complexity requires investment in R&D, education, and innovation hubs. Examples include Tshwane's aerospace cluster and Cape Town's fintech scene.

Population Pressures: Metros as Growth Magnets

South Africa's metros absorb nearly 50% of national population growth, fueled by rural-urban migration. This strains housing, services, and infrastructure. The report projects continued inflows, urging compact city planning to minimize sprawl and enhance accessibility.

The Green Transition: Opportunities Amid Risks

The shift to renewables presents dual-edged prospects. Metros like Cape Town lead in solar and wind, creating green jobs, but coal-dependent areas like eThekwini face transition risks. The report calls for just transition strategies, including reskilling for electric vehicles and energy efficiency.

Policy Recommendations for Urban Reform

The HSRC urges metros to prioritize job-led growth via data-driven planning. Key actions include:

• Enhancing spatial tax data usage for targeted investments.
• Reversing deindustrialisation through incentives for high-value manufacturing.
• Addressing mismatch via integrated land-use and transport (LUTI) models.
• Leveraging green economy for inclusive employment.
• Fostering inter-metro collaboration for shared prosperity.

National government support, via Treasury's Cities Support Programme, is vital.Read the full HSRC press release.

Photo by Lisa Marie Theck on Unsplash

Future Outlook: Pathways to Resilient Metros

Looking ahead, the report forecasts modest national growth to 2% by 2028, but metros must accelerate to lead. With proactive reforms, cities could reclaim their role as prosperity engines, reducing national unemployment and inequality. The SEAD-SA platform ensures ongoing monitoring, enabling adaptive policies.

Stakeholders from business, government, and civil society praise the report's granularity. "This data revolutionizes urban planning," notes an HSRC economist. As South Africa navigates energy reforms and global shifts, metros hold the key to inclusive recovery.