VIJAY NAIDOO: Good Business Basics – Service delivery crucial to attract investment

One of the often unspoken consequences of the effective collapse of municipal service delivery across the country is the impact on the attractiveness of commercial property investments. That the impact is severe can be evidenced by the urban blight visible in most cities and towns, in the shape of boarded up and abandoned buildings, graffiti and the like.

There is a devastating knock-on effect for municipal finances in that commercial property owners have always been something of a cash cow for local government, having to bear the brunt of ‘commercial’ refuse removal, water, and other service rates, with the cross-subsidisation of domestic ratepayers facilitated by this practice.

A recent article in online publication, Businesstech, highlights the plight of investors, who are caught between steep increases in municipal property rates and tariffs, and declining rental income as vacancy factors worsen due to long term economic stagnation.
Municipalities appear to be oblivious to these factors, and above inflation increases are the norm. Rising costs of electricity, water utilities and more will push residents and companies to reconsider properties based on the rates and tariffs associated, the article predicts. Expect the pace of urban city and town centre degradation to accelerate, as properties go unsold, and likely to seed.

Of course, in the absence of a realistic and deep review of municipal finances, any change in the approach of local authorities is unlikely. Grasping the nettle of large scale non-payment by residents, companies and indeed other tiers of government is something the political principals are clearly loathe to do, as the evidence of ballooning non-collection rates deficits over the last 10 years or more show.
Banking group FNB, quoted in the same article, predicts more downward pressure on real property net operating income and capital values.

This toxic combination of deteriorating service delivery and perversely steeply rising property owning costs, is expected to shift business activity across the country, as companies and owners seek out cities and provinces with investor friendlier costs packages, and higher levels of service delivery.

The tragedy of this, is that industry is going to be forced to move from areas that are in drastic need of employment and investment opportunities, to the relatively more affluent areas to be able to harness better operating and cost efficiencies.
The move of Clover’s cheese factory from, Lichtenburg to Durban is a stark example of this.

Vijay Naidoo is the CEO of the Port Shepstone Business Forum. He writes in his personal capacity. The views expressed are the author’s own and do not necessarily reflect those of this publication.

HAVE YOUR SAY

Like the South Coast Herald’s Facebook page, follow us on Twitter and Instagram