2017 may not be any easier

2017-01-11 06:01
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THE year 2016 will go down as a really tough year for the business community in Pietermaritzburg and the broader Midlands as demand slowed in line with the national economy and in most sectors.

A bigger problem is that there is precious little indicating that this year will be any easier. A team of economists and analysts at the economic think tank consultancy FocusEconomics­, for example, believes the economy might only grow by some 0,5% in 2017 (after barely growing by zero percent in 2016) with water and electricity constraints in particular, likely to hamper further investment in coming months.

Another economic report, the BankservAfrica Economic Transaction Index, says inflation-adjusted per capita incomes have fallen for at least three years and the management of a leading debt counselling firm Debt Rescue believes 2017 will be the fourth.

As with all economies, there were some business sectors in Pietermaritzburg and the Midlands that attracted investment last year, and companies already involved in those sectors no doubt managed to turn a tidy profit.

By far the biggest business sector in Pietermaritzburg is in retail. FNB’s household and property sector strategist John Loos says that while SA’s retail sector enjoyed good growth from mid-2009 to 2016, with real retail sales “noticeably” exceeding GDP growth each year, 2017 may be different.

“The steady slowing in monthly real retail sales growth late last year, all the way from 4,3% year-on-year as at December 2015 to a -0,2% decline as at October 2016, suggests a likely weak start to 2017, and a possible tough year for retailers,” he says in his latest report on the sector.

A mild decline in food inflation may benefit consumer price inflation, but weak employment creation could dampen already tepid consumer confidence, the government seems likely to raise taxes this year, while the interest rate environment was neutral (the risk is upside).

Of the retail sector Loos says: “We now believe that the next period of underperformance may be at hand, as perhaps signalled by very weak monthly retail sales figures late in 2016.”

With this in mind, retailers would do well to consider carefully any large expansions that they might have planned for 2017.

One sector that did expand in the city last year was medical, driven mainly by a shortage of hospital beds, which in turn has resulted from a lack of new investment in previous years and growth in the number of patients with medical aid, particularly from the public sector.

Life Hilton Private Hospital opened a hi-tech radiotherapy unit at the hospital in November, just over a year since the hospital itself opened its doors.

This project was just one of a number of expansions and additions that were added to the private hospitals in the city over 2016. Work also resumed on the multimillion-rand Eden Gardens Private Hospital just outside Edendale, from the middle of last year, after years of seeming inactivity on the project - the 130-bed facility is now expected to be completed in October this year.

Another new medical facility is being built in Burger Street, the details of which are likely to be announced early this year. The proposed development of a R500 million mother-and-child hospital on the Victoria Country Club estate also received the green light from the Pietermaritzburg High Court last year to continue with its application to have the land rezoned.

Another sector in Pietermaritzburg showing growth is student accommodation.

There has been virtually no new development of the low-cost type accommodation that students require that is situated conveniently in the city, and many older homes are being converted into student digs. Varsity College is also building its own student accommodation facility.

The agricultural sector remains a mainstay for the Pietermaritzburg and broader Midlands economies and 2016 will certainly be remembered as a difficult year for farmers due to the drought.

The Royal Agricultural Show still managed to attract a significant number of entrants for its various livestock competitions, a testament to the esteem that farmers attach to this show, but many of the businesses in the city that supply farmers, such as agricultural machinery dealers, reported lower sales during the year. Fortunately early summer rains have brought the prospect of an end to the “green” drought, but for many farmers, it may be some time before they reach healthy production levels once again. 2016 will also go down as the year in which the municipality halted what would have become the city’s biggest commercial and retail property development in decades, the development of the old Polocrosse fields opposite the Royal Showgrounds.

The municipality stopped the tender process ostensibly to investigate further the best potential uses for the land, but the tenders for the lucrative project had also become mired in controversy by that time.

In addition, legal advice obtained by the municipality indicated that not only were most of the tender bids unacceptable for various reasons, such as fronting, lack of funds and capacity, but that the municipality’s own legal processes in putting out the tender were flawed.

That said, the land remains valuable, not only for the municipality in terms of revenue from selling it and the potential to generate additional rates, but also for the economic development of the city. The municipality is keeping mum on its plans at this point in time, but property developers will undoubtedly be keeping a close watch on further developments for this site.

By most accounts, 2017 will be another difficult year for businesses in the region.

• Edward West is the business editor at The Witness.

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