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APPENDIX B-3 Economic Impact Report

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Page 1: Appendix B: Specialist Reports - GIBBprojects.gibb.co.za/Portals/3/projects/200906 Stutterheim/Appendix … · Market Feasibility Study December 2008 iv Land Use Activity Approximate

APPENDIX B-3

Economic Impact Report

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AMAHLATHI PETRO PARK

Market Feasibility and

Economic Impact Assessment

Final Report

December 2008

“The information contained in this report has been compiled with the utmost care and accuracy within the parameters specified in this document. Any decisions based on the contents of this report are however the sole responsibility of the decision-maker.”

49 Parliament Street Central

Port Elizabeth 6001

Tel: (041) 585 6640 Fax: (041) 585 6151

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EExxeeccuuttiivvee SSuummmmaarryy The purpose of this project is to investigate the feasibility of establishing a Petro-Park complex in the town of Stutterheim which lies within the Amahlathi Local Municipality in the Eastern Cape and to determine the economic impact of such as development. Amahlathi Petro Park is anticipated to encompass the development of a filling station combined with retail and tourism, arts and crafts centre. The Petro Park is anticipated to play a role in marketing and linking planned developments in the area for instance by raising awareness of transient market moving through the town about the cultural precinct in Mlungisi commercial community park as well as displaying local craft and wood work produced by the Woodhouse facility. A tourism information office within the Petro Park will be used to market the eScape route (a variety of tourism products) in Stutterheim and its surrounds. Local policies and strategies acknowledge the potential for a PetroPark in Stutterheim, which can contribute to achieving Amahlathi’s tourism objectives and promoting Stutterheim as a key growth node in the N6 corridor. 1. Filling Station Feasibility There are currently three petrol stations in Stutterheim. The three existing stations are small with limited amenities. Only one of the existing stations pumps fuel 24 hours a day, which may in part explain why this station sells more fuel than the other two stations. Stutterheim Garage and Blom’s Motors generate 50-60% of their profit from workshops that are at the filling stations and therefore are not solely dependent on fuel sales. None of the 3 stations are currently pumping at full capacity. The three stations in Stutterheim are considered small when viewed in the context of an average South African station. According to research conducted with various fuel companies a small urban filling station in a city should pump in excess of 350,000 litres per month to be viable. The current supply of fuel in Stutterheim as a whole is 552,600 litres per month. Table 1.1 illustrates the total demand for fuel in Stutterheim. Table 1.1: Total Demand for Fuel in Stutterheim

Type of Demand Litres

Local Demand 137,415

Transient Demand 547,338

Total Demand 684,753

It is clear that the highest demand is generated by the transient market. Interviews conducted with the existing filling stations confirmed that a large portion of their sales comes from the transient market (light vehicles). It should

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be noted that Stutterheim currently does not capture the heavy vehicle market effectively as the existing stations are not large enough to accommodate these vehicles. Table 1.2 illustrates the net effective demand for fuel in Stutterheim, based on the analysis presented in this chapter. Table 1.2: Total Net Effective Demand for Fuel in Stutterheim (Litres)

Total fuel demand 684,753

Total current fuel supply 552,600

Net effective demand 132,152

Based on the analysis and modelling conducted, there is additional demand for 132,152 litres of fuel per month in Stutterheim, which is currently not serviced by the existing stations. However, the supply figure of 552,600 can also be viewed as an alternative demand figure if one assumes that the petrol stations pump as much fuel as is demanded. Currently the stations only pump 552,600 litres because only 552,600 are demanded. If demand were to increase then the petrol stations would have the capacity to meet this simply by requesting additional fuel deliveries per month. For this reason, demand for fuel in Stutterheim is likely to fall somewhere between 0 litres to 132,152 litres per month. There are four important reasons why demand for fuel in Stutterheim is relatively low, namely: the local consumer market is small and has a relatively low purchasing power, many large local businesses have their own petrol pumps on site, there is a high level of income leakage out of Stutterheim (only 35% of local residents indicated that they buy fuel in Stutterheim) and Stutterheim is too close to East London to attract the transient market, which generally fills up in East London or Queenstown. Interviews with international fuel companies showed that Stutterheim is not considered to be a Capital Expenditure Injection Area, which means they are not certain a new station will be feasible. Interviews with trucking and bus companies highlighted the fact Stutterheim is too close to East London, which is the region’s main point of departure/ destination. Many companies indicated they would not purchase fuel in Stutterheim even if a new station were built. At present there is insufficient demand for a new filling station in Stutterheim based new growth in the area. If a new filling station is built in Stutterheim it would be dependent on capturing a significant market share from the existing filling stations in town, potentially to the detriment of the existing filling stations. This situation may change in future, depending on the rate at which Stutterheim grows.

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2. Retail Feasibility There is an estimated 6,820m2 supply of retail Gross Leaseable Area (GLA) in Stutterheim at present. The size and type of retail available in Stutterheim is indicative of the consumer market profile in the area, namely a small market with limited spending power. Retail demand is a function of population size, household income and retail expenditure patterns of the current consumer market in Stutterheim. The retail demand estimations provide for leakage (retail expenditure flowing out of Stutterheim) and injection (retail expenditure flowing into Stutterheim) factors. Table 1.3 shows the total demand for retail space in Stutterheim, based on the demand modelling conducted. Table 1.3: Retail Floor Space Demand

2008 (m2GLA) 2010 (m2GLA) 2012 (m2GLA)

8,559 m2 9,868 m2 11,378 m2

There are relatively high levels of retail expenditure leakage out of Stutterheim because of its close proximity to King Williams Town, East London and Queenstown where there is more retail variety and much larger retail centres. Table 1.4 shows the net effective demand for Stutterheim for the years 2008, 2010 and 2012. Table 1.4: Net Effective Retail Demand

NED 2008 (m2GLA) NED 2010 (m2GLA) NED 2012 (m2GLA)

1,739 3,048 4,558

The modeling results show that there is an undersupply of retail space in Stutterheim at present, equaling 1,739m2 in 2008. This undersupply is estimated to increase to 4,558m2 by 2012. It is recommended that the first phase of retail development comprise of 1,900m2 GLA (i.e. a local convenience centre), with additional space for a tourism information office and arts and crafts shop. It is recognised that additional retail space may be required in future and the detailed design of the facility should take future expansion into account. 3. Economic Impact Assessment From the market feasibility study, the proposed Amahlathi Petro Park development is proposed as a mixed use development mainly comprising of a filling station, retail and tourism with arts and crafts centre. The preliminary design of the development encompasses:

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Land Use Activity Approximate Size

Retail and Tourism Centre

Retail centre, including a sit-down restaurant 1,900m2

Tourism Office and arts and crafts centre 100m2

Play park (outside) 150m2

Filling Station

Filling station 500m²

Car Wash 60m²

Convenience shop, ATM and toilets 180m2

Infrastructure

150 parking spaces 3,500m2

Two dedicated bus stops with shelters on one side 300m2

Double lane traffic circle 25m by 45m

It is assumed that the total capital expenditure required for the PetroPark will total R18,1 million (R12,95 million if the filling station, car wash, convenience shop and toilets are not included in the development). This excludes the cost to purchase land as it is assumed that the land will be leased to the developer. In total, the establishment of the Petro Park will lead to the generation of R55.8 million in business sales during the anticipated 12 month construction period. This will translate into R10.2 million of value added. The development of the Petro Park will create about 79 direct employment opportunities during the construction phase. The project-affected community will directly benefit from the proposed development as it will create new employment opportunities for the locals, particularly those who are unskilled and semi-skilled. If the filling station is not included in the development, the above impacts will be slightly lower. In addition to the above impacts, the proposed development will have a long-term beneficial impact on the local economy as it will diversify the economic activities that are currently taking place in the area. There is set to be direct annual increases in value added to the region of R3.1 million and direct business sales of R22.5 million. New direct permanent employment opportunities at the Petro Park are estimated to be 97. If the filling station is not included in the development, the above impacts will be slightly lower; most of the impact comes from the retail component of the development. Apart from quantifiable impacts stated above there is very likely to be unquantifiable benefits experienced by the municipality. For example the tourism industry is likely to grow as a result of the Petro Park’s promotion. The local community is also set to benefit through up-skilling as a result of the employment opportunities at the Park.

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Apart from the positive economic impacts above, there proposed Petro Park could negatively impact on the existing petrol stations in Stutterheim. The closure of one or more existing stations would have a negative impact to the economy in terms of job losses, new business sales, contribution to GGP as well as contribution to government revenue. However, the net economic impact of the new development is still expected to be positive overall. To mitigate the potential negative impact on the existing stations it will be important that the new Petro Park be able to grow the market share, rather than depending on the existing market share. If the filling station were not constructed as part of the Petro Park, the opportunity cost is relatively small as must of the economic impact associated with the Petro Park comes from the retail centre. The risks associated with constructing the new filling station are primarily related to the potential negative impact on the existing filling stations and the feasibility of the new station. The risks associated with not constructing the filling station relate to the potential negative impact on the retail facility; the filling station and retail components are anticipated to compliment each other if built as a part of the same development. The transient market may be attracted to the filling station if retail and tourism related activities are located in close proximity to the station and the local market may purchase fuel at the station while they are purchasing retail products. 4. Recommendations Given the outcomes of the market research and economic impact modelling exercise, it is recommended that the Petro Park development be implemented in a phased approach (see table below).

Phasing Land Use Activities

Phase 1 - 2009

• 1,900m2 retail centre • Tourism office and arts and crafts centre • ATM • Toilet facilities • 150 parking spaces • Play park (outside)

Phase 2 – 2011*

• Filling station • Car Wash • Convenience shop, ATM and toilets • Two dedicated bus stops with shelters on one side

*Depending on future demand

It is recommended that the retail centre at least have a convenience grocery store, a sit-down restaurant and a take-away facility. It is recommended that the feasibility of a filling station in Stutterheim be investigated again in the medium term; i.e. Phase 2 of the development. If the Petro Park is developed in a phase approach then it is likely that the development as a whole will be feasible and can contribute meaningfully to sustainable growth and development in Stutterheim.

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Table of Contents CHAPTER 1: INTRODUCTION 1.1 Background 1 1.2 Project brief 1 1.3 Site Location 2 1.4 Report Outline 5 CHAPTER 2: LOCAL DEVELOPMENT CONTEXT 2.1 Introduction 7 2.2 Amahlathi Local Municipality Integrated Development Plan 7 2.2.1 Development Corridors 7 2.2.2 Tourism Development 8 2.3 Amahlathi Local Municipality Spatial Development Plan 8 2.4 Amathole Regional Economic Dev elopement Strategy (AREDS) 9 2.5 ASPIRE Development Initiatives 11 2.6 Synthesis 12 CHAPTER 3: LOCAL ECONOMIC PROFILE 3.1 Introduction 13 3.2 Local Economic Overview 13 3.2.1 Gross Geographic Product and Growth Rate 13 3.2.2 Sector Contribution to GGP and Employment 15 3.3 Sector Profiles 18 3.4 Synthesis 21 CHAPTER 4: LOCAL CONSUMER PROFILE 4.1 Introduction 22 4.2 Population Trends 22 4.3 Age Profile 23 4.4 Education Levels 24 4.5 Employment Status 25 4.6 Reasons for not Working 26 4.7 Occupation Profile 27 4.8 Average Household Income 28 4.9 Household Expenditure in Amahlathi 29 4.10 Transport Preferences 30 4.9 Synthesis 31

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CHAPTER 5: FILLING STATION FEASIBILITY 5.1 Introduction 33 5.2 Supply Profile 33 5.3 Demand Profile 36 5.3.1 Local Market 36 5.3.1.1 Size of the local Market 36 5.3.1.2 Vehicle Ownership 37 5.3.1.3 Average Monthly Fuel Consumption 37 5.3.1.4 Support for Existing Filling Stations 37 5.3.1.5 Total Local Demand for Fuel 37 5.3.2 Transient Market 38 5.3.2.1 Total Vehicles 39 5.3.2.2 Support for Stutterheim Stations 39 5.3.2.3 Average Transient Market Fill 40 5.3.3.4 Active Days 40 5.3.3.5 Total Transient Demand for Fuel 40 5.3.3 Total Demand Profile 41 5.4 Net Effective Demand 41 5.5 Fuel Company Facts 42 5.6 Freight Company and Transport Company Feedback 42 5.7 Development Potential 43 CHAPTER 6: RETAIL FEASIBILITY 6.1 Introduction 44 6.2 Supply Profile 44 6.3.1 Retail Demand 46 6.3.2 Net Effective Demand Estimations 48 6.3.3 Development Potential 48 6.4 Retail Financial Feasibility 49 CHAPTER 7: DEVELOPMENT CONCEPT 7.1 Introduction 52 7.2 Potential for a Petro Port in Stutterheim 52 7.3 Synthesis 53 CHAPTER 8: ECONOMIC IMPACT ASSESSMENT 8.1 Introduction 54 8.2 Current Status of Site 54 8.3 Description of Development 56 8.4 Assumptions and Cist Estimates 56 8.4.1 Construction Phase Assumptions 56 8.4.2 Operational Phase Assumptions 57 8.5 Construction Phase Impact Assessment 58

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8.5.1 Increase in New Business Sales 58 8.5.2 Increase in GGP 59 8.5.3 Impact on employment 60 8.5.4 Government Revenue Impact 62 8.6 Operational Economic Impact Assessment 62 8.6.1 Increase in New Business Sales during Operations 62 8.6.2 Impact on GGP 64 8.6.3 Impact on Employment 65 8.6.4 Government Revenue Impact 66 8.7 Municipal Income Impact 67 8.8 Opportunity Costs and Potential Risks of the Development 67 8.9 Operational Impact of New Petro Park on Existing Stations 68 8.10 Opportunity Cost and Potential Risks of the Development 70 8.11 Synthesis 71 CHAPTER 9: CONCLUDING RECOMMENDATIONS ANNEXURE 1: QUALITATIVE DISCUSSION GUIDELINES 1.1 Stutterheim Station Owner Interviews i 1.2 Transport and Freight Company Information i 1.3 Fuel Company Interviews ii ANNEXURE 2: MARKET SURVEYS Local Market Survey iii – ix Transnet Market Survey x - xiv ANNEXURE 3: UNDERSTANDING ECONOMIC IMPACT MODELLING 3.1 Introduction xv 3.2 Understanding the Input-Output Model xv 3.3 Defining Economic Impacts xvi 3.4 Types of Economic Impacts xvi 3.5 Measuring Economic Impacts xvii FIGURES 1.1 Proposed Site of Filling Station Complex, Stutterheim, Eastern Cape 3 1.2 Proposed Development Site (looking south) 4 1.3 Proposed Development Site (looking north-east) 4 2.1 N6 development Corridor and Stutterheim 11 3.1 Sector Contribution to GGP and Employment 16 3.2 Sector Contribution to Employment 17 4.1 Age Profile (2001) 23

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4.2 Education Level (2001) 24 4.3 Employment Status (2001) 25 4.4 Reasons for not Working (2001) 26 4.5 Occupation Profile 27 4.6 Average Household Income (2001) 28 4.7 Household Expenditure per Product Type (2007) 29 4.8 Amahlathi Transport Preferences (2001) 30 5.1 Locality of Existing Petrol Stations in Stutterheim 34 6.1 Retailers in Stutterheim 45 8.1 Location of Site A and B 55 TABLES 3.1 GGP Amahlathi and Amathole 14 3.2 Sectoral GGP Growth Rate 15 3.3 Sectoral Employment Growth Rate 16 4.1 Population Trends 22 5.1 Petrol filling stations on Main Road/Street 33 5.2 Average Monthly Volumes Sold 34 5.3 Petrol filling station supply facilities 25 5.4 Local Market Demand 37 5.5 Total Transient Vehicles 39 5.6 Support for Stutterheim Stations 40 5.7 Petrol Sales (Light Vehicles) 40 5.8 Diesel Sales (Heavy Vehicles) 41 5.9 Total Demand for Fuel in Stutterheim 41 5.10 Total Net Effective Demand for Fuel in Stutterheim (litres) 41 6.1 Stutterheim Retail Inventory 44 6.2 Stutterheim Retail Supply Size 46 6.3 Retail Leakage Factor 47 6.4 Retail Expenditure 47 6.5 Retail Floor Space Demand 48 6.6 Net Effective Retail Demand 48 6.7 Retail Preference Demand 49 6.8 Retail Feasibility Variables 50 6.9 Centres of Comparison: Rental Returns 51 8.1 Estimated Capital Investment 57 8.2 Estimated Operational Expenditure 57 8.3 Total Labour Expenditure 58 8.4 Impact on New Business Site 58 8.5 Increase in GGP 60 8.6 Impact on Employment 60 8.7 Government Revenue Impact 62 8.8 Increase in New Business Sales 63 8.9 Impact on GGP 64 8.10 Impact on Employment 65 8.11 Government Revenue Impact 66 8.12 Stations Employment Figures 68

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8.13 Existing Stations Estimated Annual Revenue Generated 69 8.14 Total Capital Expenditure Opportunity Costs 70 8.15 Total Operational Expenditure Opportunity Costs 71 9.1 Phasing of the Development 73

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CChhaapptteerr 11:: IInnttrroodduuccttiioonn 1.1 Background The purpose of this project is to investigate the feasibility of establishing a Petro Park complex in the town of Stutterheim which lies within the Amahlathi Local Municipality in the Eastern Cape and to determine the economic impact of such as development. The Petro Park is anticipated to play a role in marketing and linking planned developments in the area for instance by raising awareness of transient market moving through the town about the cultural precinct in Mlungisi commercial community park as well as displaying local craft and wood work produced by the Woodhouse facility. A tourism information office within the Petro Park will be used to market the eScape route (a variety of tourism products) in Stutterheim and its surrounds. The Petro Park will aim to raise awareness of by-passing travelers and makes reference to Stutterheim as a forest and tourism destination by providing information and booking facilities on available local tourism products through the tourism office with arts and craft display. This project forms part of the municipal IDP 2007/2008 which recognises the potential for developing an Amahlathi Arts and Crafts Centre. Currently the area is without a large mixed-use filling station to serve the local and transient market and ASPIRE has acknowledged a possible gap in the market. The view of Amahlathi Local Municipality, ASPIRE and Amahlathi Tourism Association is that a tourism centre with arts and crafts would not necessarily be sustainable on its own, hence the development of a filling station on the same site could make a new development economically viable. Thus, Urban-Econ Eastern Cape has been appointed by ASPIRE in partnership with the Amahlathi Local Municipality to conduct a Feasibility Study and Economic Impact Assessment for a proposed filling station in Stutterheim. 1.2 Project Brief and Objectives This report will comprise of both a market research component and an economic impact assessment. There are two key components to the market research component of the proposed development, each of which will be individually assessed within the relevant context as well as in an integrated synthesis regarding the complex development. The proposed development initiatives that Urban-Econ EC will assess are: • Filling station complex; • Retail Centre with a tourism arts and crafts centre

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In this report, a market analysis will be undertaken for both a filling station and a retail development. The entire complex (i.e. Filling Station with retail with tourism and arts and crafts centre) will be referred to throughout the report as the Petro Park. The study will assess the need or desirability of the proposed developments as well as the nature and extent of existing similar facilities in the town. Two field surveys were undertaken by Urban-Econ EC for the purposes of this project. The surveys were aimed at: • The local Stutterheim Market; • The Transient market in Stutterheim; • The N6 Transient market in Cathcart and Queenstown The Economic Impact assessment will interpret the potential short term and long term impacts of the investment within the region. This will be achieved by expressing the economic impacts in terms of direct, indirect effects with the application of the econometric modelling technique. The impact assessment will also identify financial and socio-economic risks with respect to the project. Ultimately the assessment report will be used in the Environmental Impact Report which is intended to highlight the concerns and make recommendations regarding possible mitigation measures of the investment. ASPIRE along with Amahlathi require Urban-Econ EC to provide them with the necessary information to make market informed decisions on how to proceed with this development and also provide an indication of the potential economic impacts of the development. 1.3 Site Location and Characteristics The proposed site for the Petro Park lies approximately 1.5km to the south of the Stutterheim CBD on the N6 highway. The town of Stutterheim is situated at the foot of the eastern slopes of the Kologha Mountains, a spur of the Amathole range in the Amahlathi Local Municipality.

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Figure 1.1: Proposed Site of Filling Station Complex, Stutterheim, Eastern Cape

Stutterheim lies approximately 80km to the north of East London and 110km south of Queenstown on the N6 National Highway. Refer to Figure 1.1 for a locality map and a map of the location of the proposed Filling Station Complex.

Stutterheim CBD

Proposed Filling Station Complex Site

Stutterheim, Amahlathi

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According to the Minor Feasibility Study conducted by Nzelenzele, Preston and Medcalf completed in 2008, key characteristics of the proposed development site include: • The site is located on a portion of erf 80 in Stutterheim which is approximately

1.5km south of Stutterheim CBD and 200m north of the existing R346 and N6 traffic intersection.

• The size of the site is approximately 25 000m² (i.e. 2.5 hectares). • It is considered to be suitable for development in terms of storm water

management. • Infrastructure connections including water supply, sanitation, electricity, and

telecommunication are located within close proximity. • The site is gently sloping from North to South and favourable for development. Figures 1.2 and 1.3 indicate the location of the proposed development site relative to the N6 and R346. As indicated by the Traffic Impact Assessment included in the Minor Feasibility Study by Nzelelzele, Preston and Medcalf in 2008, there are two possible traffic entry points to the site. Traffic entry point 1 would be a direct access from the N6 while traffic entry point 2 would be through an access road travelling parallel to the N6 with entry at the existing N6 and R346 intersection. Figure 1.2 Proposed Development Site (looking south)

Figure 1.3: Proposed Development Site (looking north-east)

N6 National Road

Proposed Site

Possible Entry Point 1

N6 National Road

Proposed Site R346 from King Williams Town

Possible Entry Point 2

Possible Entry Point 1

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1.4 Report Outline The remainder of the report is structured under the following chapters:

Chapter 2 – Local Development Context

This chapter presents the policy framework in which the proposed filling station and/or retail complex has been conceptualised and planned in Amahlathi and provides an overview of local development priorities.

Chapter 3 – Local Economic Profile

This chapter provides an overview of the economic profile and trends in Amahlathi Local Municipality and puts in context these local trends within the district economy of Amathole.

Chapter 4 – Local Market Profile This chapter puts the proposed development into context in terms of the potential local consumer market of the new development.

Chapter 5 – Filling Station Feasibility

The chapter investigates the current supply of fuel in Stutterheim and the demand for fuel in the town by both the local and transient markets. Ultimately the net effective demand for fuel in Stutterheim is presented.

Chapter 6 – Retail Feasibility

The chapter investigates the current supply of retail in Stutterheim and the demand for retail in the town by the local market. Ultimately the net effective demand for retail space in Stutterheim is presented.

Chapter 7 – Development Concept

The chapter presents recommendations based on the market feasibility study conducted for both the filling station component and retail component of the proposed development. The concepts presented here will then be tested for their anticipated economic impact to the region.

Chapter 8 – Economic Impact Assessment

This chapter will provide an overview of the anticipated economic impacts that will result from the construction and operation of a Petro Park complex to the region. These outcomes will then be incorporated into the Environmental Impact Assessment process.

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Chapter 9 - Concluding Recommendations

This chapter presents various development recommendations that will assist Aspire and the Amahlathi Local Municipality in taking the proposed Petro Park project forward.

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CChhaapptteerr 22:: LLooccaall DDeevveellooppmmeenntt CCoonntteexxtt 2.1 Introduction It is important to understand the policy framework in which the proposed Petro Park is being planned in Amahlathi and whether planning documents such as the IDP and SDF have identified the proposed Petro Park as a priority project. This chapter also considers other projects identified in and around Stutterheim that may impact on the proposed Petro Park project. This chapter provides an overview of the following planning documents, namely: • Amahlathi Local Municipality Integrated Development Plan (IDP), 2008/2011 • Amahlathi Local Municipality Spatial Development Framework (SDF), 2006 • Amathole Regional Economic Development Strategy (AREDS), 2007 • ASPIRE N6 Development Corridor Regeneration 2.2 Amahlathi Local Municipality Integrated Development Plan The Integrated Development Plan for Amahlathi for 2008/2011 focuses primarily on improving service delivery and infrastructure in the municipality through public sector investment projects. The IDP strategy, although focused on public sector investment, seeks at the same time to spark private sector investment in the municipality through increasing the capacity of the local population i.e. improving access to education. 2.2.1 Development Corridors The IDP identifies development corridors as roads or railway routes that are usually associated with the movement of people between places. The IDP has acknowledged that “movement corridors” have the potential to accommodate development of different levels of intensity and a mix of land uses at certain points along the route. In this regard the N6 corridor between East London and Queenstown has been indentified by the IDP as a Special Route particularly in the context of transporting locals and tourists within the municipality. The proposed site for the Petro Park is located on the N6 national highway which places the site in the strategic development area. This issue is expanded upon as part of the Strategic Development Framework.

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2.2.2 Tourism Development The IDP for Amahlathi acknowledges tourism as a potential growth sector in the municipality and aims to increase the number of tourists to the area. The IDP has recognized the importance of developing a tourism master plan and creating linkages with tourism marketing bodies outside of the local municipality. The IDP acknowledges that Stutterheim boasts two ‘Tourism Zones’ in close proximity to the town, namely the South Eastern section of Amahlathi LM which is recognized as having eco-tourism potential while the Thomas River Conservancy boasts eco and Nature tourism potential. The IDP highlights a heritage and craft objective of “preserving culture, history and uncover hidden talents through craft.” The IDP recognizes the development of an Amahlathi Arts and Crafts centre in Stutterheim, however due to the sustainability of a such a project, Aspire has acknowledged that the development of a new filling station with an arts and crafts centre could make such a project feasible. Implications for the Project: The overall focus of the IDP is that of service delivery improvement through public spending. Increasing the number of tourists to areas around Stutterheim will benefit the Petro Park Development. In the medium to long term, encouraging day visitors and sleep over tourists to the area will increase the demand for both fuel and retail products and have a positive contribution to the local economy. Currently however the tourist market is relatively small around Stutterheim and much benefit from this market is unlikely in the short term. 2.3 Amahlathi Local Municipality Spatial Development Plan The Amahlathi Spatial Development Framework proposes to make use of four spatial structuring elements, two of which apply to the location of the proposed development, these include: • The concept of Development Nodes • The concept of Urban Edges Development nodes are categorized as towns or places where higher order functions are found. Stutterheim is an important service centre for surrounding farms and rural communities and is therefore considered a primary node. The functions of primary nodes generally include private and public institutions such as schools, government offices, etc. and private enterprises such as retail and tourism-related enterprises. The SDF confirms that development nodes are often located on main transport routes to provide maximum access and act as catalysts for new growth and development. The SDF recognizes Stutterheim as the primary economic and service centre of the Amahlathi Municipality. The spatial development emphasis in this area has been identified as ensuring that there is the infrastructure and services in place to

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support the development of this node; and ensuring adequate linkages between Stutterheim and surrounding nodes. The SDF suggests that business growth in Stutterheim should occur as close to the town’s CBD as possible as it recognizes the importance of consolidating the CBD. It suggests that a site for a new shopping centre close to the CBD needs to be determined. According to the SDF, the proposed site for development of a Petro Park is considered to be part of the Urban Edge. The SDF recognizes that consolidated development and densification should be promoted within the urban edge. The SDF acknowledges developments such a residential and businesses development on an Urban Edge as being desirable especially to the west of Stutterheim and near Mlungisi. The SDF identifies the proposed site for the Petro Park as being the intersection of the N6 and the R346, which lies opposite the proposed site for this development. The current proposed site is identified for further residential and business development. It is important to note that the SDF merely serves as a guide to future potential development. When detailed planning is done it may be found that sites identified in the SDF for specific land uses are not suitable. For example, the site identified in the SDF for the Petro Park has significant limitations in terms of slope of the land and access to the site; the current proposed site is deemed more suitable. With respect to new retail developments, at present there is limited land available in and around the CBD for new retail development. There exists a possibility to develop a new node close to, but outside, the CBD. Implications for the Project: The SDF does identify a site for a Petro Park, across the N6 from the current proposed site. Both sites are within the urban edge. 2.4 Amathole Regional Economic Development Strategy (AREDS) ASPIRE developed the Amathole Regional Economic Development Strategy (AREDS) on behalf of the Amathole District in 2007. AREDS consists of 2 volumes, Volume 1 is the Economic Development Strategy and Volume 2 consists of a number of input papers, which were used as a basis from which to develop AREDS. The sectors assessed in detail in Volume 2 include manufacturing, tourism, commercial farming, subsistence farming, human capital and government social expenditure. AREDS identifies Stutterheim (along with Alice, Fort Beaufort, Butterworth, etc.) as a secondary order node. This confirms Stutterheim’s role as a service centre for the surrounding farms and rural areas. AREDS also identifies the N6 as one of 4 primary transportation routes in the Amathole District.

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AREDS has adopted a corridor approach based on the transportation routes in the area, therefore development efforts will be focussed on the N6 corridor, the N2 corridor, the R72 corridor and the R63 corridor. The vision outlined in the strategy is that of developing an economy with higher GVA and with sustainable and quality employment opportunities. More specifically achieving a target whereby 60% of households earn an income and 50% of households have an income above the MLL. AREDS identifies four strategic elements, which will be focused on to achieve the above vision and targets, namely: • High impact investment • Improved governance • Knowledge skills and human capital development and • Communication, interaction and partnerships between stakeholders Within each of these four elements, a number of result areas have been identified and are important focus areas that can help achieve the desired results. It is expected that programmes will be identified for each result area in each of the four development corridors.

Strategic Element Result Area Investment to improve localities Sub-Sector focus where competitive advantage exists Public Good Economic Investment District Venture Capital available

High Impact Investment

Stimulate new sectors with value adding capabilities Collaborate to improve competitiveness Targeted vocational training programmes Targeted Skills retention & attraction programme Support to and development of capacity to local municipalities Business Development Support to Business

Improved Governance

Develop Sub-sector Research & Innovation Capability Reduce Red Tape Needs specific operational planning & Budgeting Effective Land use and Management Transparent and Principled Governance Effective Public Procurement & investment Align Organisational responsibility to

Knowledge, Skills & Human Capital Development

Quality Current & accessible Economic Data Facilitate and support Regional Growth Coalition IGR forum Support to policy & Programmes linkages Partnership programme, including PPPs

Communication, interaction & partnerships with stakeholders Implement Effective M & E Programme

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Implications for the Project: AREDS has identified the N6 as one of its four development corridors, and Stutterheim as an important secondary node within the District. For this reason ASPIRE has identified a number of development opportunities, including the proposed Petro Park, in Stutterheim. The proposed development clearly falls within a number of strategic elements, including high impact investments. 2.5 ASPIRE Development Initiatives Aspire is engaged with overseeing the stimulation of the Amathole District Municipality with the objective of regenerating small town economies. Aspire recognizes small towns as economic and service hubs for rural communities and ‘growth point’ areas for a corridor development approach through catalytic projects. Aspire has concentrated efforts on building economic potential inherent in the corridors created by the region’s four primary routes: N2, N6, R72, R63. Stutterheim has been identified as a key development focus area as it is an important economic and service centre and an anchor of the N6 corridor’s development. Figure 2.1 depicts the position of Stutterheim relative to the N6 development corridor. Figure 2.1: N6 Development Corridor and Stutterheim Source: Adapted from Aspire, 2008, (Online) About R4.5m EU funding has been sourced to develop this route which entails development of 15 new tourism products in Stutterheim area ranging from archery, guided forests walk, canopy tours, abseiling etc as well as R65m funding from National Treasury NDPG for renewal of Stutterheim through development of a cultural precinct with entertainment facilities in the township of Mlungisi that is linked to the Petro Park development. Furthermore, R45m investment has been secured from IDC for blueberry farming initiative 17km south of Stutterheim that

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will generate -+5000 seasonal jobs for Stutterheim residents. The indirect and induced effects will be experienced by the rest of Amahlathi economy. Given the location of the proposed Petro Park development, it is expected that the direct benefits of its development will be observed throughout Amahlathi, taking into consideration that Stutterheim constitutes the largest urban economy in the local municipality. Regeneration of Stutterheim area through this development and other proposed development in the area such as Mlungisi commercial community park, the Woodhouse project and Amabele blueberries and station renewal aim to strategically position Stutterheim by building on the area’s competitive advantage as well as promote value chain development of sectors with competitive advantage. Implications for the Project: Aspire has recognised the Petro Park as being an important component of Stutterheim’s and the N6 corridor’s development. The Petro Park is particularly relevant as it is intended to encourage the transient market passing through the area on the N6 to stop at convenient location near the town where they can be informed of the area’s tourism attractions and be encouraged to spend longer periods of time in the area. 2.6 Synthesis The Amahlathi IDP and AREDS both recognise the economic potential for Stutterheim as a service and development node for the region. ASPIRE in its corridor approach distinguishes the potential of a small town such as Stutterheim as an economic growth point. The Petro Park development will take the form of a private investment in Stutterheim and clearly falls within a number of strategic elements identified in the Amathole Regional Economic Development Strategy, most notably the form of a high impact investment. The proposed site for the development, although not specifically identified in any of the strategic documents, was derived from the SDF’s recommendation for the development of a Truck Stop in the immediate vicinity of the proposed site. Aspire has recognised the Petro Park as being an important component of Stutterheim’s and the N6 corridor’s development as it has the potential to attract the transient market and in turn promote other development initiatives in the area such as tourism products as well as local arts and crafts.

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CChhaapptteerr 33:: LLooccaall EEccoonnoommiicc PPrrooffiillee 3.1 Introduction This chapter provides an overview of the economic profile and trends in Amahlathi Local Municipality and puts in context these local trends within the district economy of Amathole and local development priorities. This economic analysis, along with the local consumer profile (Chapter 4) provides a foundation for assessing the potential for development of a new filling station and/or retail development in Stutterheim. The chapter is structured under the following headings: • Local Economic Overview • Gross Geographic Product and Growth Rate • Sector Contribution to GGP and Employment • Sector Profiles 3.2 Local Economic Overview The Amahlathi Local Municipality is situated in the Eastern Cape Province of South Africa within the Amathole District Municipality. It is a Category B Municipality. The Amahlathi Municipal area is comprised of 20 Wards and is characterized by a range of settlement patterns and associated land uses, including formal urban areas, formal and informal rural settlement areas, and privately owned farmland. Amahlathi has a dominant rural characteristic and therefore has fairly limited economic activity in the area apart from the three dominant urban clusters of Stutterheim, Cathcart and Keiskamahoek the two former being situated on the N6 national highway between East London and Queenstown. The remainder of the municipality comprises of rural communities. As a result Stutterheim and Cathcart are important service and economic centres of the municipality, Stutterheim being the largest centre. Stutterheim provides a number of higher order services, including access to government services (e.g. Amahlathi Local Municipality, clinics, libraries, schools), business and banking services and retail services. The sparsely distributed rural population makes provision of services, infrastructure and access to economic opportunities very difficult for the majority of the population in Amahlathi. 3.2.1 Gross Geographic Product and Growth Rate Gross Geographic Product (GGP) comprises the value of all final goods and services, produced during a year, within the boundaries of a specific region and is commonly used to measure the level of economic activity in a specific area. GGP is utilised as an important indicator of economic activity.

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Table 3.1 presents total GGP in Amahlathi, the growth of the local economy and the percentage contribution to the GGP of Amathole District Municipality for the ten year period from 1997-2007. Table 3.1: GGP Amahlathi and Amathole

Year GGP (Rand)

(‘000s) Growth Rate Amahlathi

Contribution to ADM GGP

1997 R 666,423 4.8% 3.5% 1998 R 678,083 1.7% 3.5% 1999 R 715,105 5.5% 3.6% 2000 R 757,316 5.9% 3.7% 2001 R 800,529 5.7% 3.8% 2002 R 819,104 2.3% 3.8% 2003 R 853,940 4.3% 3.9% 2004 R 909,318 6.5% 4.0% 2005 R 1,029,926 13.3% 4.3% 2006 R 1,303,119 26.5% 5.2% 2007 R 1,400,208 7.5% 5.3%

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) The economy of Amahlathi was valued at R1.4 billion in 2007 and has been growing on average 7.7% from 1997 to 2007. This is a fairly high growth rate when compared with 3.4% growth in ADM over the same period. The growth witnessed in Amahlathi has come off of a relatively small base in 1997 compared the whole of Amathole which includes Buffalo City, but is still significant. The large growth rate of the economy in 2005 and 2006 is indicative of the high increase in demand for timber and subsequent increases in price for raw and finished wood products over this period. This result was partly due to the expanding building industry during this time as well as the significant loss of timber in other parts of the country due to fire damage which provided the area with a competitive advantage. Amahlathi Local Municipality contributed 5.3% of the total Gross Geographic Product (GGP) of the Amathole Municipality in 2007. This amounted to approximately R1 billion, making it one of the largest contributors to the district GGP after Buffalo City Municipality which contributes approximately 83% of the district’s economic output. It is evident that the contribution of Amahlathi to the district economy has been growing over the 10 years assessed (from 3.5% to 5.3%). This indicates that the economic growth of Amahlathi is higher compared to the growth of the other local municipalities in the district.

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Implications for the study: The Amahlathi economy is a relatively large and fast growing economy, whose contribution to the ADM economy has grown over the last 10 years. These positive growth trends bode well the future development of Amahlathi if this growth can be sustained. It could also bode well for the development of the proposed Petro Park. 3.2.2 Sector Contribution to GGP and Employment Table 3.2 illustrates the GGP growth rate in Amahlathi per economic sector. Table 3.2: Sectoral GGP Growth Rate

Economic Sectors 2001- 2007 Growth Rate Total 7.7% Agriculture 0.3% Mining -2.9% Manufacturing 22.7% Electricity & water -2.5% Construction 10.8% Trade 4.6% Transport & communication 0.3% Finance and business services 10.4% Government Services 4.1%

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) As seen in Table 3.2 several economic sectors in Amahlathi have witnessed positive growth over the last 6 years and the total economy grew by 7.7% during this period. However, most sectors of the economy have been growing at a slower rate than 7.7% and for this reason their contribution to the overall GGP of Amahlathi has decreased. The manufacturing sector has grown significantly over this period at 22.7%. Figure 3.1 illustrates the relative sector contribution of each economic sector to the overall GGP of Amahlathi Local Municipality.

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Figure 3.1: Sector Contribution to GGP (2001 & 2007)

13.1%

0.2%

20.8%

0.6%

3.6%

8.5%

2.9%

9.4%

40.9%

7.6%

0.1%

40.6%

0.3%

3.8%

6.4%

1.7%

9.7%

29.8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Agriculture

Mining

Manufacturing

Electricity & w ater

Construction

Trade

Transport & communication

Finance and business services

Government Services

2001 2007

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) The most significant trend illustrated by the above graph is that because the manufacturing sector has grow extremely fast (23% on average) over the last 6 years it has emerged as the largest contributor to the local economy. Government (including community services), is still the 2nd largest contributor to the GGP of Amahlathi. This dependence on the public sector is unfavorable as it is not considered a productive sector of the economy; however the contribution of government to the local economy has dropped by 12% in the last six years. Agriculture is a very small contributor to GGP and has been stagnant (i.e. not grown) over the past 6 years. However, the role of agriculture in the local economy is critical as much of the manufacturing taking place in Amahlathi is agro-processing and dependent on agriculture for inputs. Table 3.3 illustrates the employment growth rate in Amahlathi per economic sector. The table illustrates that overall; employment has only grown at 1.1%. There are significant differences in growth between the different sectors, with agriculture, mining and manufacturing seeing negative growth (i.e. job losses), while other sectors saw more growth (e.g. trade and finance and business services). Table 3.3: Sectoral Employment Growth Rate

Economic Sectors 2001- 2007 Growth Rate Total 1.1% Agriculture -3.9% Mining -2.3% Manufacturing -1.6% Electricity & water 1.2%

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Construction 3.4% Trade 6.6% Transport & communication 0.1% Finance and business services 8.7% Government Services 0.2%

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) If one considers Table 3.3 in the context of Table 3.2 (GGP growth) it is evident that most sectors experiencing large growth in GGP have also seen growth in employment, with the exception of the manufacturing sector, which saw growth in GGP of 23%, but negative employment growth. This could be due to the fact that manufacturing is a capital intensive industry and may have seen significant increases in efficiency that negated the need to increased employment. Figure 3.2 illustrates the sector contribution of each economic sector to employment in Amahlathi Local Municipality. Figure 3.2: Sector Contribution to Employment (2001 and 2007)

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) The government and community service sector is by far the largest generator of jobs in the economy, although its contribution to total employment has decreased slightly to 39%. Agriculture was the 2nd largest contributor to employment in 2001, but has been overtaken by the trade sector, which saw both growth in GGP and employment from 2001 to 2007. Agriculture is a labour intensive sector of the economy, which is why it contributes more to employment than to GGP. The declining employment in agriculture is a trend mirrored throughout the province as farmers implement more mechanized forms of farming to retain their competitiveness.

20.1%

0.7%

10.2%

0.3%

8.0%

12.0%

1.5%

6.1%

41.1%

14.8%

0.6%

8.7%

0.3%

9.1%

16.5%

1.4%

9.5%

39.0%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Agriculture

Mining

Manufacturing

Electricity & w ater

Construction

Trade

Transport & communication

Finance and business services

Community services

2001 2007

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Implications for the study: The above illustrates that the agriculture, manufacturing and tertiary economic sectors are important contributors to both GGP and employment in Amahlathi. The economy is relatively well diversified across the sectors relative to other areas in the province. The local economy has been moving away from its dependence on government and has seen growth, both in GGP (fast) and employment (slow) over the last 6 years. 3.3 Sector Profiles This section provides an overview of the ‘productive’ sectors in Amahlathi, meaning all sectors excluding the government sectors and the utilities sector and is presented according to the primary, secondary and tertiary grouping of sectors. The primary sectors involve the extraction and production of raw materials such as agriculture and mining sectors. The secondary sectors involve the transformation of raw materials into goods in this case being the construction and manufacturing sectors. The tertiary sector involves the provision of services to consumers and businesses. Primary Economic Sectors Together the primary sectors in Amahlathi (i.e. agriculture and mining) accounted for approximately 8% of the municipality’s GGP (2007). Agriculture, and specifically commercial forestry, is the most important primary sector in Amahlathi (over 7% contribution to GGP coming from agriculture). The RSC database (2006) lists 41 registered agricultural enterprises based around Stutterheim. These range from small animal husbandry services up to large forestry plantations. Commercial forestry is one of the cornerstones of Stutterheim’s economy. There is approximately 13,500 hectares of land under plantation in the Amahlathi area of which 81% is state owned and 19% privately owned (Eastern Cape Forestry Sector Profile, 2007). The largest private sector plantation company is Amathole Forestry Company. Private and state plantations employ in excess of 500 people. It has been noted that there is potential to expand plantation sizes in the area to a total of approximately 22,000 hectares. There is a strong link between forestry and manufacturing (e.g. saw milling) in the local economy, with the bulk of timber grown around Stutterheim being processed locally. Local companies have indicated that they also import timber for processing because local supply is insufficient. Other forms of agriculture in Amahlathi include commercial farming, which includes poultry, livestock and a small amount of citrus. The area is well known for its Dohne sheep populations. Commercial farming is characterized by private ownership of land producing higher yields due to better access to infrastructure

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and support systems. Subsistence farming in the area tends to be focused more on the production of traditional staple crops such as maize and the rearing of livestock. Due the high unemployment in the area, a large proportion of the population located outside of the urban areas like Stutterheim and Cathcart rely on subsistence farming as part of the mix of their livelihood strategies. Unlike commercial farming, communal/subsistence farming contributes little to GGP in the area. There are two sand and aggregate quarries in the immediate vicinity of Stutterheim, one is owned by the municipality while Stutt Quarries is a private company and the largest in the area. Two large poultry productions operate within the vicinity of Stutterheim, ANCA and Grassdale. These productions mostly supply to the market outside of the area. The primary sector is a labour intensive sector and therefore a decrease in the contribution of this sector towards employment (as seen over the past 6 years) can negatively impact on employment as a whole. Secondary Economic Sectors Manufacturing is the dominant secondary economic sector in Stutterheim and is primarily comprised of manufacturing in the form of saw milling, poultry food production and light industry. The RSC database (2006) lists 8 manufacturing companies located in Stutterheim and four others within Amahlathi. The saw mills in the area are located in close proximity to the local timber plantations. The largest timber producing company in the area is Rance Timber. The company operates two saw mills in Amahlathi located approximately 16km from Stutterheim. The majority of the raw materials used in their production are acquired locally; this reflects that a significant percentage of raw materials derived from the area are turned into either intermediate or final goods through agro-processing (local value adding). This is reflected in the manufacturing sector’s high contribution to GGP (44%). The Kubusi Sawmill, which is the company's large log sawmill with sawn board output production of 45 000m³ per annum. The other mill produces an output of 16 000 m³ board per annum. The Rance Timber is based solely in Amahlathi where shareholders, directors and management are all people from the local communities and dividends and salaries are retained locally. Western Province Timber is another major timber manufacturing company in Stutterheim. The company manufactures various finished products. Most of inputs used in manufacturing are sourced locally i.e. from Rance Timbers and other small saw mills. Other smaller manufacturers of significance in Stutterheim include Amabele Poles and Stutt Poles.

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The demand for timber has increased considerably in the last few years owing to a number of fires which have destroyed many plantations in northern parts of the country. Prices for timber products have increased dramatically over the last few years; this has also been as a result of the demand for wood sparked by a growth in the building industry in South Africa over the past 4 years. Another large manufacturing company located in Stutterheim is Newden Products (Boardman Brothers) whose factory is located in Stutterheim. The factory employs 185 permanent staff members. The company first established in the area in 1969 but has seen several expansions over the years. The company distributes a variety of hardware products and cleaning materials both nationally and abroad. The construction sector in Stutterheim comprises predominantly of small contractor businesses, the RSC database lists 20 active construction related businesses in Stutterheim. Examples of local construction related companies include: Zwelihle Building and Civil Construction, Mbiyakhe Contractors, Uluntu Construction and Mpahla’s Construction. The manufacturing sector is the largest productive economic sector in Stutterheim and Amahlathi. Most of the manufacturing taking place in Stutterheim is agro-processing, and specifically timber processing from the commercial forestry plantations in and around Stutterheim. The fact that raw material (i.e. timber) is transformed through value-adding in the area is a significant benefit to the local economy. Tertiary Economic Sectors The tertiary economic sectors are relatively well developed in Stutterheim as the town is an important service centre for surrounding farmers and rural communities. Specifically finance and business services and the trade (i.e. retail) sector contribute towards the strength of the tertiary sectors. The retail sector is characterised by a dominance of local shops ranging from small clothing stores to general dealers. There are few national retailers located in the municipality apart from examples like Spar, Pep and Town Talk. As the municipality is so close to East London, Queenstown and King Williams Town there is a significant amount of leakage out of the area as many local consumers travel to these areas to make retail purchase. There is no evidence of a large retail centre in the municipality. For a more in depth analysis of retail activity in Stutterheim refer to the retail feasibility chapter of this report, Chapter 6. In terms of finance and business services, there are a number of banks in Stutterheim including Absa, Standard Bank, First National Bank and Old Mutual. This is indicative of the importance of Stutterheim as a service centre for other area. There are also a few local, small accounting, law firms, estate agents, etc. found in Stutterheim, their presence however indicates that the town does form a service centre for surrounding areas.

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The tourism sector is also a tertiary economic sector and has been identified as having significant growth potential. The area boasts a variety of tourism products such as hiking, fishing, horse riding and mountain biking, craft centres and memorials. Tourism in Stutterheim is both business (conference) and leisure orientated; with the latter bring bringing in the highest number of tourists to the area. The Stutterheim area boasts the largest selection of Hotels, guest houses, self catering, camping and Bed & Breakfast accommodation in the municipality. Popular hotels and guesthouses in the area include: The Manderson (with conference centre), The Croft Guest Cottages, Eagles Ridge and Casa Mia. Other tourist orientated attractions around the town include, Mgwali Village, Wrigleswade Dam and Amabele. It should be noted that Amahlathi has recently re-launched their tourism information board which now falls under the eScape brand. Their offices with information centre are located in Stutterheim.

3.4 Synthesis The Amahlathi local economy is characterised as a relatively small, but growing economy that is still heavily dependent on the government and community sector for both employment and value added contributions. It appears though that the private sector is beginning to ‘drive’ economic growth particularly through large manufacturing companies in the area which bodes well for the proposed development. Stutterheim acts as the economic and service hub of Amahlathi and its economy is relatively diversified. The commercial forestry sector is one of the most important economic sectors as it provides inputs into the manufacturing sector (the largest contributor to the local economy). Manufacturing primarily focuses on timber processing and is a competitive advantage in the area. The tertiary sectors, including retail and finance and business services are strengths in the local economy and draw surrounding communities into Stutterheim (as do government services). Tourism has been identified as an important sector with growth potential, particularly considering Stutterheim’s position along the N6 between East London and Queenstown.

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CChhaapptteerr 44:: LLooccaall CCoonnssuummeerr PPrrooffiillee 4.1 Introduction The purpose of this chapter is to provide a concise overview of the potential consumer market of the proposed PetroPark in Stutterheim. The demographic analysis profiles the following indicators, namely: • Population trends • Age profile • Education levels • Employment status • Occupation profile • Average household income • Expenditure patterns • Mode of transport The chapter provides the foundation for assessing the potential for new development (described in the next chapters) as the local Stutterheim population (and to a lesser extent the Amahlathi population) will be one of two potential markets for any new petrol station and will be the primary market for any retail development. 4.2 Population Trends There are approximately 137,000 people who live in Amahlathi Local Municipality (about 1% of the population of Amathole District Municipality) in four urban areas (Stutterheim, Cathcart, Kei-Road and Keiskamma) and numerous rural villages throughout the municipality. Table 4.1 describes the household structure and density for the municipal area and for Stutterheim. Table 4.1: Population Trends

Indicator (2007) Amahlathi Stutterheim Population total 137,286 26,470 Households total 33,763 6,478 Population Growth rate (95-01) 0.9 1.9 Population Growth rate (01-07) -0.1 1.3 Household Size 4 4 Area (Sqr Km) 4,267 79 Population density (People per Sqr Km) 32 335 Household density (H.H. per Sqr Km) 7.9 82.0

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008)

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Findings: • Stutterheim’s population totals 19% of Amahlathi’s population and is the

largest urban area in the local municipality. • Stutterheim’s population growth rate is higher than that of Amahlathi, this is a

typical pattern and illustrates evidence of rural-urban migration. • Amahlathi’s growth rate from 2001 to 2007 is negative, this is indicative of a

migration out of the municipality to larger urban areas such as Buffalo City. • The population density of Stutterheim is over 10 times that of Amahlathi, this

is typical of an urban area, where people live in close confines. • Amahlathi as a whole is affected by out migration and negative population

growth rate, although there is evidence of migration to Stutterheim. Implications for the study: Population indicators are important for developmental planning as they directly influence decisions on where to locate future and planned developments. In the case of Amahlathi, investing in Stutterheim makes sense as it is the largest urban area, although additional pressure is put on infrastructure and service provision in Stutterheim because of in-migration. This must be considered when planning new developments in the area. 4.3 Age profile The age distribution of a population is important as the largest population age group inevitably dictates the demands of the market. Figure 4.1 below presents the age distribution in Amahlathi and Stutterheim. Figure 4.1: Age Profile (2001) Source: Urban-Econ Eastern Cape calculations based on Quantec (2008)

8.40%

11.89%

13.83%

12.90%

8.22%

6.25%

5.48%

5.63%

5.38%

4.59%

3.47%

2.80%

3.44%

2.46%

2.11%

1.38%

1.26%

0.50%

9.05%

11.32%

12.92%

11.40%

9.53%

8.02%

6.45%

6.73%

5.88%

5.34%

2.98%

2.12%

2.98%

1.65%

1.21%

0.91%

1.13%

0.38%

0% 2% 4% 6% 8% 10% 12% 14% 16%

00-04

05-09

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80-84

85+

Amahlathi Stutterheim

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19.7%

26.7%

10.7%

28.9%

9.7%

4.3%

19.8%

25.3%

9.8%

27.3%

11.0%

6.8%

0%

5%

10%

15%

20%

25%

30%

35%

No schooling Some primary Completeprimary

Somesecondary

Std 10/Grade 12 Higher

Amahlathi Stutterheim

Findings: • It is evident that there are more elderly and young people in Amahlathi as a

whole, and more working aged people living in Stutterheim. This makes sense as there will be more employment opportunities in urban areas. People often leave their dependents in the rural areas when they go to find work.

• 53% of the population of Stutterheim is of working age which is notably higher than the province, where only 35% of the population is of working age.

• Still, 45% of the Stutterheim population is under the age of 19, which illustrates that the area is characterised by a relatively young population.

Development Implications: Over half the population of Stutterheim is of working age (higher than in Amahlathi) which bodes well for the proposed development as there is a large potential work force available locally and potentially a comparatively large consumer base. However these statistics must be considered in relation of education levels to determine whether the local population has the skills required to take up employment opportunities. A large proportion of the Stutterheim population is under the age of 19, which is indicative of a relatively youthful population. 4.4 Education Levels Education levels in any given market area will influence economic and human development. Household and personal income levels are also affected by education levels. Low education levels lead to a low skills base in an area while high education levels have the opposite effect, producing a skilled population. Figure 4.2 illustrates the education levels in Amahlathi and Stutterheim. Figure 4.2: Education Levels (2001)

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008)

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Findings: • Noticeably, the education profile of Amahlathi and Stutterheim is very similar,

although there are slightly more people in Stutterheim with matric or a higher qualification than Amahlathi.

• Still, less than 1 in 5 people in Stutterheim have Grade 12 or higher education, this is lower than provincial and national averages – suggesting a highly unskilled workforce particularly for an urban area.

• About 1 in 5 people in both Stutterheim and in Amahlathi have no education at all; the Stutterheim figure is particularly high for an urban area.

Implications for the study: Considering the large workforce available in Stutterheim it is concerning that education levels are so low (only 28% having matric or a higher qualification). Education levels are an important indicator for future investors in an area, as it means that if skilled labour is not available within a specific area they will need to be brought in from elsewhere. Even though the types of jobs created by the proposed petrol filling station/retail development will be largely semi-skilled and unskilled positions, employers prefer to have access to a well educated workforce. Skill levels will also have an influence on the types of jobs available in the area and the potential purchasing power of the population relative to their income. 4.5 Employment Status Figure 4.3 indicates the employment status of the local population and indicates the portion of the population which is not economically active. Figure 4.3: Employment Status (2001)

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008)

17.3%

27.2%

55.5%

26.1%

31.4%

42.5%

0%

10%

20%

30%

40%

50%

60%

Employed Unemployed Not Economically Active

Amahlathi Local Municipality Stutterheim

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Findings: • There are roughly 6,880 employment opportunities in Stutterheim, which

means that roughly 26% of the population is employed. • As expected, employment in Stutterheim is higher than in Amahlathi as a

whole being an urban area. It is also higher than the Amathole District’s employment level of 21%.

• Over 40% of the population in Stutterheim is not economically active. Section 4.6 illustrates why people are not economically active.

Development Implications: Employment and unemployment levels represent a fair indication of the local socio-economic status and its income levels. The above figures are indicative of a market where there is likely to be low purchasing power as a result of high unemployment and high dependency on ¼ of the population to generate income. Household expenditure is thus anticipated to focus on food and transportation, which is typical of lower income areas. 4.6 Reasons for Not Working This section illustrates why almost 40% of the population is not economically active. Figure 4.4 presents the various reasons. Figure 4.4 Reasons for not working (2001)

40.8%

9.0%

12.0%

8.1%

1.1%

8.6%

20.4%

44.9%

4.2%

16.0%

12.7%

2.0%

6.3%

13.9%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Scholar or student

Home-maker

Pensioner

Disability

Seasonal w orker

Does not choose to w ork

Could not f ind w ork

Amahlathi Local Municipality Stutterheim

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) Findings: • Over 13% of the population in Stutterheim and over 20% of Amahlathi’s

population is not working because they could not find work. These individuals

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may be classified as unemployed if the broad definition of unemployment is used.

• Most of the population in Stutterheim is not working because they are either school children or in tertiary institutions (45%), which correlates with the analysis of the age profile in Stutterheim, where 45% of the population is under 19.

Implications on the study: The presence of a large potential workforce, but relatively high levels of unemployment (45% if one considers the broad definition of unemployment) are indicative of the fact that the local economy is unable to create enough jobs to keep up with population growth. This is supported by the fact that the Amahlathi Municipality only saw a growth of 1% in employment from 2001 to 2007. New investment in the region is expected to be of benefit to the community, assisting in the creation of both short-term construction employment and long-term sustainable jobs. 4.7 Occupation Profile The occupation profile is an indicator of the level of income that can be generated by the local population. The profile indicates whether the population has a dominant skilled or unskilled labour force. Figure 4.5 shows the occupation profile of Amahlathi and Stutterheim. Figure 4.5: Occupation Profile (2001)

2.7%

4.1%

10.6%

7.8%

9.1%

8.2%

10.5%

9.4%

37.7%

4.2%

4.3%

9.2%

8.8%

8.7%

4.8%

12.8%

9.8%

37.5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Legislators

Professionals

Technicians

Clerks

Service w orkers

Skilled agricultural w orkers

Craft w orkers

Plant assemblers

Elementary occupations

Amahlathi Stutterheim

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008)

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Findings: • Two in five working people both in Stutterheim and in Amahlathi are employed

in elementary occupations – as mentioned previously this is typical of an unskilled population, and the low education levels in the area are testament to this.

• Semi-skilled jobs (i.e. craft workers, skilled agricultural workers and service workers) make up roughly 26% of the total, as do skilled positions.

Implications on the study: A large part of the work force in Stutterheim is employed in elementary occupations, which indicates that the levels of income are expected to generally be low. The PetroPark would primarily create unskilled employment opportunities, which will perpetuate the occupation trends witnessed in the region.

4.8 Average Household Income The average household income provides an understanding of income levels in any given area. Figure 2.6 shows the monthly household income for households in Stutterheim and Amahlathi. Figure 4.6: Average Household Income (2001)

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) Findings: • 70% of households in Amahlathi live below the poverty line of R800 a month

compared with 60% of households in Stutterheim that also live below the poverty line.

31.7%

8.5%

29.8%

15.5%

7.6%

3.6%

1.9%

0.6%

0.2%

0.2%

0.3%

0.0%

23.9%

9.7%

26.4%

17.9%

9.8%

5.0%

4.0%

1.2%

0.3%

1.0%

0.7%

0.1%

0% 5% 10% 15% 20% 25% 30% 35%

No income

R1 - R400

R401 - R800

R801 - R1 600

R1 601 - R3 200

R3 201 - R6 400

R6 401 - R12 800

R12 801 - R25 600

R25 601 - R51 200

R51 201 - R102 400

R102 401 - R204 800

R204 801 or more

Amahlathi Stutterheim

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• One in three households in Amahlathi has no income at all compared to one in four households in Stutterheim.

• Only 22% of Stutterheim residents have a monthly household income of more than R1, 600 per month.

• The weighted average monthly household income in Stutterheim is R3,900 compared to that of the Eastern Cape’s of R2,600.

Implications on the study: The household income results reflect a population of both rural and urban dwellers with very low purchasing power, 70% and 60% households respectively living below the poverty line. This will impact on motor vehicle ownership and transport and retail expenditure patterns. 4.9 Household Expenditure in Amahlathi Figure 4.7 illustrates household expenditure patterns in Amahlathi. Figure 4.7: Household Expenditure Per Product Type (2007)

Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) Findings: • Households in Amahlathi spent R1.3 billion on various goods and services in

2007, of this; most income was spent on food and beverages, followed by transportation.1

• It is expected that household expenditure in Stutterheim will generally follow the same trends as in Amahlathi.

1 Transportation includes payment for public transport, fuel purchases, motor vehicle accessories, etc.

Transport , 15.2%

Other durable goods, 0.8%

Miscellaneous Goods, 0.5%

Food, 21.5%

HH Fuel, 3.9%

HH Consumer Goods, 4.2%

Medical Products & Services, 5.7%

HH Services, 2.4%

Misc. Services, 8.7%

Petroleum Products, 2.7%

Rent, 4.6%

Furniture/ Appliances, 3.2%

Recreation/ Entertainment,

9.4%

Clothing/ Footwear, 14.4%

HH Furnishings, 2.7%

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Implications on the study: Retail (particularly for food items) and transport costs are the two largest expenditure items, which is expected amongst lower income households. The use of public transport, primarily taxis and busses, and ownership of private vehicles will be important to consider when determining the demand for an additional petrol station in Stutterheim. Similarly retail expenditure patterns will important to determine demand for new retail facilities. 4.10 Transport Preferences Transport preferences indicate the form of transport that the Amahlathi and Stutterheim populations utilise in order to travel back and forth from work/school (refer to Figure 4.8). Figure 4.8: Amahlathi Transport Preferences (2001) Source: Urban-Econ Eastern Cape calculations based on Quantec (2008) Findings: • An overwhelming majority of people got to and from work/school on foot in

both Amahlathi and Stutterheim in 2001. • While it is likely that more people will be dependent on motorised transport in

2008, it is still probable that most people do not depend on vehicular transport to travel locally in Stutterheim.

• In 2001 roughly 7% of the Stutterheim population travelled with a vehicle that would require petrol to operate (Note: car passengers are excluded from this).

Implications on the study: The use of motorised transport will impact on the demand for petrol in Stutterheim. Surveys conducted in 2008 will provide a better indication of this demand than the above data. Refer to Chapter 5 for a more detailed analysis.

87.7%

0.3%

0.3%

2.1%

3.8%

4.0%

1.6%

0.2%

0.2%

88.0%

0.3%

0.1%

0.4%

4.4%

4.5%

1.9%

0.2%

0.2%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

On foot

By bicycle

By motorcycle

By car as a driver

By car as a passenger

By minibus/taxi

By bus

By train

Other

Amahlathi Stutterheim

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4.11 Synthesis The table below provides a synthesis of the consumer market analysis.

Variable Amahlathi Stutterheim

Population (2007) 137,286 26,470

Number of households (2007) 33,763 6,478

Average household size (2007) 4 4

Average pop. growth (2001-2007)

0.4% 1.6%

Age profile (2001)

47% of population falls under the age of 19. 58.1% falls in 15-64 years group (i.e. potentially economically active) % of population is over 65 years old.

45% of population falls under the age of 19. 61.3% falls in 15-64 years group (i.e. potentially economically active) 8% of population is over 65 years old.

Level of education (2001)

20% have no schooling 27% some primary 10% Grade 12 4% higher than matric

20% have no schooling 25.3% some primary 11% Grade 12 6.8% higher than matric

Level of employment (2001)

17.3% employed 27.2% unemployed 55.5% economically inactive

26.1% employed 31.4% unemployed 42.5% economically inactive

Household expenditure (2007)

21% Food 15% Transport 14% Clothing & shoes

Not available

Mode of Transport (2001)

87.7% Foot 4% Taxi 3.8% Car as passenger

88% Foot 4.5% Taxi 4.4% Car as passenger

Weighted average monthly h.h. income

R 1,936.04* R 3,944.99*

*2001 National Census

Stutterheim and Amahlathi have a relatively large working population compared to other areas in the Eastern Cape. Unfortunately, the population is largely undereducated. As a result the types of jobs available in the area are mostly elementary which results in relatively low monthly household incomes. Expenditure patterns reflect the fact that Stutterheim (and Amahlathi) are lower income areas. The consumer market profile will influence the proposed development (and vice versa) in a number of ways. Firstly, Stutterheim has a fairly small population and it is likely that a new retail facility or petrol station will have to attract the

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surrounding populations and transient market to ensure its sustainability. A new development must also try and capture a large local market share. The Stutterheim and Amahlathi populations are not wealthy, which means that vehicle ownership levels will be lower than in affluent areas. It is expected that a new petrol station will require support from the transient market and the local commercial market for fuel sales as it is unlikely that the local population will be able to sustain an additional filling station. The demand for fuel in Stutterheim is examined in Chapter 5. Wealth levels also have an influence on retail expenditure patterns and preferences, which are explored further in Chapter 6.

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CChhaapptteerr 55:: FFiilllliinngg SSttaattiioonn FFeeaassiibbiilliittyy 5.1 Introduction This section of the report analyses the feasibility of establishing a new Filling Station along the N6 at Stutterheim. This will be achieved by assessing all demand and supply factors that relate to the establishment of a petrol filling station at this site. Demand for a petrol filling station is determined by estimating the number of fuel sales that will be drawn by the new facility. This section outlines the various variables that will influence demand such as total vehicles, levels of support for the garage and average fuel consumption. These will inform the model used to investigate total potential demand. This chapter is presented in terms of the following sections: • Supply profile • Demand profile • Net effective demand modelling • Development potential 5.2 Supply Profile There are currently three existing petrol stations in Stutterheim as illustrated in Figure 5.1. All 3 stations are owner operated (i.e. do not pay rent to oil company) and have been in existence for over 20 years. All three are less than 2 kilometres from the proposed new filling station complex. BCN Motors and Blom’s Motors are located directly across from one another along the N6, which travels through Stutterheim. Table 5.1 summarises key information about the existing stations. Table 5.1: Petrol filling stations on Main Road/Street

Name Operator Colour on Figure 1.1

Distance from Proposed Site

Shared Traffic Stream

BCN Motors Engen Blue 1.6 km Yes

Stutterheim Garage Shell Orange 1.1 km Yes

Blom’s Motors BP Green 1.5 km Yes

Source: Urban-Econ Eastern Cape, 2008

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Figure 5.1: Locality of Existing Petrol Stations in Stutterheim Table 5.2 shows the tank capacity and average fuel volumes (i.e. petrol and diesel) that are sold by each of the three fuel retailers in Stutterheim. Table 5.2 Average Monthly Volumes Sold1

Station Name Tank Capacity (Litres) Ave. Volume Sold p/Month (Litres)2

BCN Motors 97 000 250 000

Stutterheim Garage 83 000 200 100

Blom’s Motors 64 000 102 500

Total 244 000 552 600

Source: Urban-Econ Eastern Cape, 2008

It is evident from table 5.2 that the existing stations in Stutterheim would only need to fill their tanks between 1.6 and 2.6 times per month in order to meet current demand for fuel, which is estimated to be in the region of 552 600 litres per month for the whole town. It is also evident that BCN Motors (i.e. Engen) sells the most fuel in Stutterheim and that Blom’s sells the least. BCN Motors is also the only station that pumps fuel 24 hours a day, which may in part explain why this station sells more fuel.

1 Figures are derived from the average monthly fuel sales for the first half of 2008. 2 Obtained from official records provided by owners

Proposed Filling Station Complex Site

Proposed Filling Station Complex Site

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Table 5.3 below provides a summary of facilities and services for each of the existing petrol filling stations situated in Stutterheim Table 5.3 Petrol filling station supply facilities

Facilities Engen Shell BP

No. Petrol Pumps 3 5 3

No. Diesel Pumps 1 1 1

Car Wash facility No No No

Restaurant (i.e. Steers/Wimpy) No No No

Retail Facility Yes* Yes Yes*

Operating hours: Station 24 12 -14 12 - 14

Operating hours: Convenience Store 24 24 12 - 14

Next to shopping Store/Centre No Yes No

Car Service Station No Yes Yes

ATM No No No Source: Urban-Econ Eastern Cape, 2008 *Note: Tuck shop and not fully fledged retail facility Findings: • The Shell station has the most pumps available, while the BP and Engen

garages are the same size (despite this the Engen garage pumps the most fuel).

• None of the existing petrol stations offer a sit down restaurant and only the Shell has a 24 hour retail facility (Two others have tuck shops). None of the retail facilities is an accredited fuel company brand and are all less then 50m² in size.

• None of the stations offer any car wash facilities, but two of the three have service stations (i.e. workshops) on site.

• Only the Engen garage operates 24 hours a day and only the Engen relies solely on fuel sales to generate an income.

• The Shell and BP garages rely heavily on the workshops operating from the site to generate income. Each of these workshops is owned and operated by the station owner themselves and they estimate that 50-60% of their profit comes from the workshop (i.e. 40-50% from fuel sales).

• The three stations in Stutterheim are considered to be small when viewed in the context of an average South African Station. According to research conducted with various fuel companies, a small urban filling station in a city would pump in excess of 350 000 litres per month while a larger station such as an Engen One-Stop or Shell Ultra City would supply in excess of 1 million litres per month.

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5.3 Demand Profile The total demand for fuel in Stutterheim is determined from the amount of fuel sold to the local market together with the total sold to traffic moving through the area (i.e. transient trade).

Dfs=f(lm ; lt) Dfs=demand for a filling station lm=fuel sold to local market lt=fuel sold to transient market.

Section 5.3.1 illustrates how the fuel sold to the local market has been determined, while section 5.3.2 illustrates how the fuel sold to the transient market has been determined.3 5.3.1 Local Market The demand for local market petrol is a function of the number of residential units (i.e. households), vehicle ownership, average monthly fuel consumption and percentage support for local filling station. This is presented in the following function:4

Demand from local taxis and commercial vehicles have been included in the transient market calculations due to data availability. 5.3.1.1 Size of the Local Market (r) From the local market profile (Chapter 3) the number of households in Stutterheim in 2007 was 6,470. This figure reflects only the urban residential population of Stutterheim.

3 Important note: While local demand does comprise of households and businesses, the demand of the local market in terms of taxis and commercial vehicles has been calculated in Section 5.4.1: Transient Market because traffic counts were used to derive this demand and it was not possible to determine which vehicles were local/transient from the traffic count. 4 Local demand calculations are most sensitive to changes in the support of local households for Stutterheim stations compared to other local demand variables.

Dlm=f(r; v; l; s) Dlm=local market fuel demand r=residential units (i.e. households) v=vehicle ownership ratio l=average monthly fuel consumption s=support to Stutterheim Stations

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5.3.1.2 Vehicle Ownership (v) The local market survey conducted by Urban-Econ Eastern Cape in September 2008 indicates 56.6% of households (i.e. 3,688) in Stutterheim own at least one vehicle.5 This is a relatively low ownership ratio, however considering the consumer market profile defined in Chapter 3 as being predominantly unskilled with high unemployment numbers and subsequent low household income, this figure is realistic for a population such as Stutterheim’s. 5.3.1.3 Average Monthly Fuel Consumption (l) The local market survey conducted by Urban-Econ Eastern Cape in September 2008 shows that 1st cars consume 117 litres of fuel a month and 2nd cars consume 83 litres of fuel per month. This correlates with the findings of a national household survey.6 5.3.1.4 Support for Existing Filling Stations (s) The local market survey conducted by Urban-Econ Eastern Cape in September 2008 shows that only 34.6% of local residents primarily purchase fuel in Stutterheim. Other preferred locations to purchase fuel include King Williams Town, Queenstown, East London and Cathcart. Some of the reasons provided by local residents as to why they do not purchase the bulk of their fuel in Stutterheim include Stutterheim stations are very busy at the end of the month, some residents work in nearby towns and fill up there and residents fill up with petrol when they conduct other activities like shopping in nearby towns. 5.3.1.5 Total Local Demand for Fuel Table 5.4 shows how the demand for fuel from the local Stutterheim market was calculated. Table 5.4: Local Market Demand

Variable Value Households (r) (Source: Quantec, 2008) 6,470 Vehicle ownership (v) (Source: Urban-Econ EC Survey, 2008) 3,688 Total 1st cars 2,545 Total 2nd cars 1,143 Average Monthly Fuel Consumption (Litres) (l) 392,614 (Source: Urban-Econ EC Survey, 2008) 117

5 This can be compared with the National Department of Roads and Transport database (June 2008) of registered and unregistered vehicles in Stutterheim. The total is 4,506, which would mean 69% of Stutterheim households own a vehicle, however these figures include people living outside Stutterheim who register their vehicles in the town (Cathcart and Stutterheim are the only two licensing offices in Amahlathi). The two sets of figures correlate with one another. 6 According to the National Household Driveway survey the average consumption of 1st cars is 120-150 liters per month and 2nd cars consume 80-100 liters per month. These figures correlate with the findings of the local market survey.

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1st car litres/month 1st car total litres 297,724 2nd car litres/month 83 2nd car total litres 94,890 Support (s) (Source: Urban-Econ EC Survey, 2008) 35% Local Market Litres Demanded Total per Month 137,415

It has been estimated that the total demand for fuel in Stutterheim from the local market is 137,415 litres per month. 5.3.2 Transient Market The transient market in Stutterheim is defined as traffic moving through Stutterheim. This includes all northbound and southbound traffic travelling along the N6 as well as all eastbound and westbound traffic entering the N6 and R356 traffic intersection. The demand for fuel in terms of transient trade is a function of the volumes of petrol and diesel consumed by the transient market. This is presented in the following function:7

Dtt=f(pv ; dv) Dtt=demand for transient trade pv=petrol consumption

dv=diesel consumption. The demand for fuel by local taxis and commercial vehicles has been calculated in this section as traffic count data was used to derive demand figures. The overall demand for both petrol and diesel is determined by the following functions:

Petrol volumes Dpv=f(v ; s ; af ; ad) Dpv= demand for petrol volumes v= vehicles (12/24 hour) s= % support for Stutterheim Stations af = average fill ad= active days Diesel volumes Ddv=f(t ; s ; af; ad) Ddv= demand for diesel volumes v= vehicles (12/24 hours) s= % support for Stutterheim Stations af= average fill ad= active days

7 Interception rates and average fill (particularly in the case of heavy vehicles) are noted as being the most sensitive variables in calculating transient fuel demand.

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5.3.2.1 Total Vehicles (v) This refers to the total number of vehicles, both light (Petrol) and heavy (Diesel) that pass the proposed site for the filling station on an average day. The table below shows the results of the traffic counts undertaken for one day in June 2008 with adjustments made for removing locals for the count. In order to calculate an estimated total transient market vehicles traveling through Stutterheim for one given day, it has been assumed that: • 4 hours of peak traffic occur between 06h00 – 08h00 and 16h00 - 18h00 • 8 Hours of off-peak traffic occur between 08h00 and 16h00 • 50% of off-peak traffic past Stutterheim is local traffic in all directions except

for the small R346 (access road) which is all local traffic. • 75% of morning peak traffic going towards East London and evening peak

traffic returning from East London is local traffic. • It has been assumed that 50% of traffic travelling on the R346 at all times is

local traffic. • All heavy vehicles passing through the intersection are transient. • All heavy vehicles accessing and existing the Ambulance Depot (R346 West)

are local • Traffic between 18h00 and 06h00 equates to 20% of traffic between 06h00

and 18h00 (Industry Average) Given the above assumptions, Table 5.5 illustrates the total transient market passing through Stutterheim per day. Table 5.5 Total Transient Vehicles

N6

North N6

South R346 West

R346 East

Total

Total light vehicles 690 1,647 0 773 3,110 Total heavy vehicles 250 384 0 149 811

(Source: Traffic Count, 2008) 5.3.2.2 Support for Stutterheim Stations (s) The support for Stutterheim stations (i.e. interception rate) refers to the percentage of the total transient traffic that currently utilise existing filling stations in Stutterheim. The interception rate for light vehicles has been derived from the market survey conducted by Urban-Econ Eastern Cape in September 2008 in which 19% of the people surveys indicated that they would stop in Stutterheim to put in fuel. It has assumed that due to the close proximity of King Williams Town, only 5% of the transient market moving along the R346 would put in fuel in Stutterheim. The information obtained from local fuel station owners on the number of heavy vehicles that use their stations on a daily basis, in addition to interviews with local

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businesses, have been used to determine the interception rate for heavy vehicles. According to current owners, on a good day it is said that 12 heavy trucks would fill up with fuel in all three stations, while on a quiet day only 3 might do. Many of the large companies operating out of Stutterheim have their own fuel pumps on site (e.g. ANCA, Rance Timbers, Grassdale and Stutt Quaries). Therefore an average interception of 1% is used for heavy vehicles passing through Stutterheim, given the traffic count figures. Table 5.6: Support for Stutterheim Stations

Type of Vehicles N6 North N6

South R346 West

R346 East

Total

Light Vehicles 19% 19% 0% 5% 11%

Heavy Vehicles 1.0% 1.0% 0.0% 1.0% 0.8%

5.3.2.3 Average Transient Market Fill (af) The average fill refers to the average amount of petrol/diesel that is purchased per vehicle stopping in Stutterheim. According to the market survey conducted by Urban-Econ Eastern Cape in September 2008, the average fill for light vehicles in Stutterheim is 36 litres and for heavy vehicles is 111 litres.8 5.3.2.4 Active Days (ad) The number of active days per month is 30 days for light vehicles as this is the average number of days a month and 22 days for heavy vehicles as this is the average number of days that heavy vehicles will operate per month. 5.3.2.5 Total Transient Demand for Fuel The tables below indicate the figures and variables used in calculating the total fuel sales to the transient market within the study area. Distinction is be made between the potential petrol sales to light vehicles and potential diesel sales to heavy vehicles Table 5.7 Petrol Sales (Light Vehicles)

Variable Value

Total light vehicles (v) (Source: Traffic Count, 2008) 3,110

Support for Stutterheim stations (s) (Source: Urban-Econ EC

Survey, 2008) 11%

# of support light vehicles 483

Average fill (litres) (l) (Source: Urban-Econ EC Survey, 2008) 36

Light vehicles petrol litres/day 17376

Active Days (ad) 30

Light vehicles Petrol Litres/month 521,284

8 36 litres is considered to be two thirds of the capacity of a medium sized family car (i.e. Toyota Corolla) and 111 litres is just under half of the tank capacity of a standard four ton or larger truck.

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Table 5.8 Diesel Sales (Heavy Vehicles) Variable Value

Total heavy vehicles (v) (Source: Traffic Count, 2008) 811

Support for Stutterheim stations (s) (Source: Urban-Econ

EC Survey, 2008) 0.8%

# of support heavy vehicles 8

Average fill (litres) (l) (Source: Urban-Econ EC Survey, 2008) 111

Heavy vehicles petrol litres/day 868

Active Days (ad) 22

Heavy vehicles Diesel Litres/month 26,054

It has been estimated that the total demand for fuel in Stutterheim from the transient market is 547,338 litres per month. It is evident that most of this demand currently comes from light vehicles travelling through Stutterheim, this includes demand from local taxi’s who regularly fill up in Stutterheim. This is in part due to the close proximity of Stutterheim to East London which is the region’s main point of destination and departure for heavy transport vehicles and due to the fact that many local companies have their own pumps on site. 5.3.3 Total Demand Profile Table 5.9 illustrates the total demand for fuel in Stutterheim, i.e. local and transient demand, based on the data presented in Sections 5.3.1 and 5.3.2. Table 5.9: Total Demand for Fuel in Stutterheim

Type of Demand Litres

Local Demand 137,415

Transient Demand 547,338

Total Demand 684,753

5.4 Net Effective Demand Table 5.10 illustrates the net effective demand for fuel in Stutterheim, based on the analysis presented in this chapter. Table 5.10: Total Net Effective Demand for Fuel in Stutterheim (Litres)

Total fuel Demand 684,753

Total current Supply 552,600

Net Effective Demand 132,152

Given the above assumptions it is evident that there is additional demand for 132,152 litres of fuel per month in Stutterheim, which is currently not serviced by the existing stations. According to petrol station owners in Stutterheim they accumulatively pump on average 552,600 litres of fuel per month. While this is the supply figure used in

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the model presented above, in reality the supply could be higher as all 3 stations are currently not pumping at full capacity. The capacity would be much higher as all stations would be equipped to receive far more deliveries of fuel per month. The figure of 552,600 can also be viewed as an alternative demand figure if one assumes that the petrol stations pump as much fuel as is demanded. Currently they only pump 552,600 litres because only 552,600 are demanded. If demand were to increase then the petrol stations would have the capacity to meet this simply by requesting additional fuel deliveries per month. 5.5 Fuel Company Feedback Qualitative interviews were held with BP, Shell and Engen to test the fuel company’s perceptions around the potential for the new filling station in Stutterheim. The following summarises their inputs: • Fuel companies identify certain “Capital Expenditure Injection Areas” around

the South Africa where they consider financing the construction of new stations where feasibility is considered high – Stutterheim as a town is not considered to be a Capex injection area.

• Within these injection areas, feasibility for a new station is considered to be good if:

• The number of vehicles passing the proposed site exceeds 10 000 to 15 000 vehicles per day.

• The station can be expected to pump in excess of 350 000 litres per month

• The forecourt over hang of the station is visible for 250 metres in all directions.

• If however a private investor were to develop a station themselves and simply purchase fuel from a particular fuel company, they would not be required to meet the above expectations, as this would be considered an individual risk of the investor.

5.6 Freight Company and Transport Company Feedback Qualitative interviews were held with logistics managers of eight freight/transport companies (e.g. Stutterfords, DHL, Translux, Citiliner, etc.) regarding Stutterheim as a potential location for a new truck stop and filling station that their fleet’s might consider utilising. • The majority of companies interviewed belong to either e-fuel or specific fuel

company card systems i.e. they receive through negotiations slightly discounted diesel rates at participating filling stations around the country.

• Therefore their trucks stop where it is convenient making location the deciding factor. Unanimous concerns were raised that Stutterheim is too close to East London which is the region’s main point of departure/destination.

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• Most indicated that a proposed station would have to offer high incentives for their vehicles to stop there (i.e. accept profit margins of 2% to 3% less than competitors).

• Translux & Citiliner indicated that their busses only stop for five minutes in Stutterheim to pick-up and drop-off passengers because the town is so close to East London. No passengers are currently allowed off bus when they stop in Stutterheim. They indicated it was unlikely that if a new station was to open in Stutterheim that they would purchase fuel here or consider it a ‘pit-stop’ for their passengers due to the close proximity to East London.

5.7 Development Potential It has been shown that demand for fuel in Stutterheim can be considered in two ways. Demand modelling has shown that optimistically, there is a net effective demand for 132,152 litres per month, but could be as low as zero demand if it is assumed that the current stations pump what is currently demanded in the town. Local fuel demand (from both households and businesses) is quite low and existing local petrol stations are heavily reliant on the transient market. At present none of the existing stations are pumping at full capacity and none pump the 350,000 litre volume per month which is considered to be a successful small station output by fuel companies. Fuel companies have not identified Stutterheim as a capital injection area as the market is too small at present and transport and bus companies appear unlikely to significantly change their current operations if a new Petro Park is built in Stutterheim. At present there is insufficient demand for a new filling station in Stutterheim based on new growth in the area. Given the above, if a new filling station is built in Stutterheim it would likely be dependent on capturing a significant market share from the existing filling stations in town.

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CChhaapptteerr 66:: RReettaaiill FFeeaassiibbiilliittyy 6.1 Introduction This chapter provides an assessment of the retail potential in Stutterheim given the current retail supply and retail expenditure patterns of the market. This chapter is therefore presented in terms of the following sections: • Supply profile • Demand profile • Net effective demand modelling 6.2 Supply Profile Table 6.1 provides an indication of the formal retail supply in Stutterheim.1 Table 6.1: Stutterheim Retail Inventory

Retailer Type of Retail AMAHLATHI SPAR Monthly and Top Up Groceries AMATOLA SPAR Monthly and Top Up Groceries TRIPLE STREAMS Monthly and Top Up Groceries STUTTERHEIM BUTCHERY Monthly and Top Up Groceries MEAT 'N CHICKEN Monthly and Top Up Groceries HARVEYS PTY LTD SUPERMARKET Monthly and Top Up Groceries WILLOWVALE BUTCHERY Monthly and Top Up Groceries KRAUSE COUNTRY MEATS Monthly and Top Up Groceries AMATOLA BAKERY Monthly and Top Up Groceries JOE'S FRUIT AND VEG Monthly and Top Up Groceries RUBELLA CASH STORE Monthly and Top Up Groceries SOUTHERN FRIED CHICKEN Restaurants & take-aways BUDDY BURGER Restaurants & take-aways STUTTERHEIM COUNTRY CLUB Restaurants & take-aways BARRONE SPORTS PUB & RESTAURANT Restaurants & take-aways IMPRESSIONS COFFEE SHOP Restaurants & take-aways JOE'S CAFÉ TAKEAWAYS Restaurants & take-aways BIG DADDY LIQUOR STORE (PRESTONS) Speciality goods SPARKS LIQUORS Speciality goods ISIDENGE BOTTLE STORE Speciality goods SCOONIE LIQUORE STORE Speciality goods MAGEBHEZA PRINTERS & STATIONERS Speciality goods GIFTS AND FABRICS Speciality goods HOGSBACK CLOTHING Clothing, shoes & accessories TAGS CLOTHING Clothing, shoes & accessories PEP STORES Clothing, shoes & accessories MADLOMO CLOTHING Clothing, shoes & accessories COLLETS PHARMACY Personal care

1 This list is not intended to be a comprehensive audit of retail facilities (i.e. retail facilities in the surrounding townships have not been included); rather the list is intended to provide an indication of the type of retail available in Stutterheim.

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TOWN TALK Furniture & Homeware LEWIS STORES Furniture & Homeware SAVELS FURNITURE Furniture & Homeware STUTT DRY CLEANERS Cleaning services BOARDMANS HARDWARE (BUILD-IT) Hardware goods MR VIDEO Leisure & entertainment ESCAPE Leisure & entertainment

Findings: • There are limited national chains in Stutterheim; some of these include Spar,

Kwik-Spar, Lewis, Savels, Town Talk and Preston’s Liquor and Pep. • There are no national chain restaurants or takeaways in Stutterheim. • Most of the retailers are grocery stores, including two Spars • Most of the retailers in the category of speciality goods are liquor stores, there

are limited other speciality stores in town • There are very few personal care, hardware, cleaning services and leisure and

entertainment retailers in Stutterheim. • The types of retailers in Stutterheim reflect that the local consumer market is

not wealthy or large Figure 6.1 provides an indication of the type of retail available in Stutterheim. Figure 6.1: Retailers in Stutterheim

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Table 6.2 provides an overview of the supply of retail in terms of Gross Leasable Area (GLA) per retail category. Table 6.2 Stutterheim Retail Supply (m2)

Retail Type Current Supply (m²) Monthly Groceries 3,350 Clothing, shoes & accessories 525

600 Hardware goods 300 Personal care 150 Cleaning services 75 Restaurants & take-aways 800 Leisure & entertainment 120 Speciality goods 900 Total Supply 6,820m²

It is evident that all of the retailers in Stutterheim are relatively small in size. The largest retailer is estimated to be 400m2. The supply of retail is indicative of the type of consumer market in the area, namely a small market with emphasis of basic food stuffs and little evidence of luxury and personal care stores. A population with relatively limited spending power is reflected in the local consumer profile (chapter 4) which determined that retail expenditure is expected to make up a large portion of household’s annual income. 6.3.1 Retail Demand Retail demand is a function of population size, household income and retail expenditure patterns of the current consumer market in Stutterheim. Expenditure patterns take into account the population profile of the town. Demand estimations are calculated using population and income growth trends. The retail demand estimations provide for leakage and injection factors. For example, consumers in Stutterheim will purchase a percentage of their goods outside of the town, either because there is more variety elsewhere or prices outside of Stutterheim might be cheaper for certain goods. This is considered leakage. On the other hand, many rural consumers travel to Stutterheim to purchase some of their wares. This is considered an injection into the Stutterheim retail market. Because demand estimations have considered both injections and leakages, they are considered conservative and realistic. Table 6.3 provides an indication of what proportion of the local consumer market chooses to purchase certain goods outside of Stutterheim. These results were derived from the local market survey conducted in Stutterheim and adjusted according to the estimated injection of non-Stutterheim residents coming to shop in the town.

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Figure 6.3 Retail Leakage Factor Retail Type Injection/Leakage

Monthly groceries -5.6%Top up groceries -4.4%Clothing, shoes & accessories -18.8%Furniture & Homeware -3.1%Hardware goods 8.7%Personal care 1.9%Cleaning services (e.g. laundromat) -3.1%Restaurants & take-aways -12.5%Leisure & entertainment -11.3%Speciality goods 3.1%

(Source: Urban-Econ EC Survey, 2008)

The above figures make sense when one considers the retail supply profile of Stutterheim. Most people will purchase their monthly groceries at larger national retailers at month end outside of Stutterheim, but most people buy their top-up groceries more frequently in town. In the same manner, people go outside of Stutterheim primarily to purchase clothes, shoes and accessories, to eat out at restaurants and for leisure and entertainment purposes. This is because there are limited retailers in Stutterheim catering for these products. Table 6.4 presents estimations for potential retail expenditure per retail product type in the Stutterheim market for the years 2008, 2010 and 2012. Table 6.4: Retail Expenditure2

Retail Type 2008

(RAND/ANNUM) 2010

(RAND/ANNUM) 2012

(RAND/ANNUM) Monthly groceries R 58,923,195 R 67,938,650 R 78,333,500

Top-up groceries R 10,719,187 R 12,359,260 R 14,250,270 Clothing, shoes, accessories

R 22,430,619 R 25,862,582 R 29,819,647

Furniture/Homeware R 12,602,079 R 14,530,241 R 16,753,418

Hardware goods R 3,365,880 R 3,880,872 R 4,474,659

Personal care R 7,921,512 R 9,133,531 R 10,530,993

Cleaning services R 1,200,198 R 1,383,832 R 1,595,564

Takeaway/Restaurant R 5,803,874 R 6,691,887 R 7,715,769

Entertainment R 3,064,609 R 3,533,504 R 4,074,143

Speciality goods R 2,680,000 R 3,090,050 R 3,562,838

TOTAL R 128,711,153 R 148,404,409 R 171,110,801 From Table 6.4 it can be derived that currently the local market in Stutterheim spends about 46% of its retail expenditure on monthly/bulk groceries. This figure

2 Function of population growth rates, numbers of households, annual household income, disposable income (i.e.

after tax), inflation and leakage/injection rates per product. Base year is 2007, survey data is from 2008.

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is higher than national averages however it is typical of a lower income earning population such as Stutterheim’s. The above expenditure patterns translate into demand for retail floor space in the Stutterheim market as summarised in Table 6.5. Table 6.5: Retail Floor Space Demand

Retail Type 2008 (m2GLA) 2010 (m2GLA) 2012 (m2GLA) Monthly groceries 3,275 3,776 4,354 Top-up groceries 596 687 792 Clothing, shoes, accessories

1,194 1,376 1,587

Furniture/Homeware 1,042 1,201 1,385

Hardware goods 179 207 238

Personal care 322 371 428

Cleaning services 99 114 132

Takeaways/Restaurants 342 394 454

Entertainment 1,305 1,504 1,734

Speciality goods 205 237 273 TOTAL 8,559 m2 9,868 m2 11,378 m2 It is calculated that the current demand for retail in Stutterheim is 8,559 m² in 2008. This is expected to increase by 2,818 m² in the next five years. 6.3.2 Net Effective Demand Estimations Net effective demand represents retail demand that has been adjusted for supply in the primary market i.e. Demand measured on the basis of retail expenditure less the current market supply measured of retail in square metres. Table 6.7 provides the net effective demand for Stutterheim for the years 2008, 2010 and 2012. Table 6.6: Net Effective Retail Demand

NED 2008 (m2GLA) NED 2010 (m2GLA) NED 2012 (m2GLA)

1,739 3,048 4,558

The modeling results illustrate that there is an undersupply of retail space in Stutterheim at present, equaling 1,739m2 in 2008. This undersupply is estimated to increase to 4,558m2 by 2012. 6.3.3 Development Potential Net effective demand results together with survey results indicate that clothing stores, personal care stores, restaurants and grocery stores are in highest demand in Stutterheim. Consumers are particularly enthusiastic to see an increase in retail variety for restaurants, clothing stores and groceries. It was revealed that local consumers would like to see an increase in the number of

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national chain stores that operate from Stutterheim. The total net effective demand for retail is currently 1739 m2. Consumers have acknowledged that they would like to see another brand of grocery store in Stutterheim such as a Shoprite or a Pick ‘n Pay, as currently the only national options are two Spar stores. People in Stutterheim want to see a national restaurant or takeaway introduced to the town such as KFC or Nandos, the town currently offers only local restaurants and fast food outlets. Currently people need to travel to larger town to purchase most of their clothes; the population would like to see a national clothing store such as Jet or Edgars in Stutterheim. Table 6.7 indicates the preferred brands of local consumers per retail category. Most of the brands identified are generally associated with a lower income market, which characterises the Stutterheim and surrounding populations. Table 6.7 Retail Preference Demand

Retail Type Choice 1 Retailer Choice 2 Retailer

Groceries Shoprite Pick ‘n Pay Clothing, shoes & accessories Jet Edgars Furniture & Homeware Ellerines Joshua Door Hardware goods Buildrite Builders Express Personal care Clicks Dis-Chem Cleaning services n/a n/a Restaurants & take-away KFC Nandos Leisure & entertainment Mr Video Musica Specialty goods Game Total Sports

In conclusion, it has been shown that there is potential to introduce a variety of new retail in Stutterheim taking into consideration the brand preferences listed in Table 6.7. The type of retail provided at the PetroPort should be considered in light of other possible retail developments being planned in Stutterheim (e.g. Mlungisi Commercial Park). Due to the location of the PetroPort along the N6 retail shops such as a grocery store, restaurant and take-away may be more appropriate at that location while other retail developments could focus on clothing, personal care items, etc. 6.4 Retail Financial Feasibility The following section considers if a retail development of 2000m² would be financially feasible in Stutterheim. The feasibility of any small retail development considered to be a convenience centre is dependent on several key requirements:

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• A permanent anchor tenant is vital to the success of a small convenience centre, as the majority of consumers will be drawn to the centre because of this tenant.

• A small centre needs to meet the immediate needs of the local population which makes variety especially important.

• Usually convenience centres are located in close proximity to a residential area and/or a busy traffic intersection.

• Convenience centres need most/all of their shops to operate for longer hours compared to conventional retail, so that they can meet the needs of consumers after hours.

The following function will be used in this study to determine the financial feasibility of a new retail development:

FF=f(Cpx;Opx;Rs) Cpx= Annual Capital Expenditure repayments Opx = Annual Operational Costs Rs = Leasable Retail Space

The following assumptions are made in determining the feasibility of establishing a new convenience retail centre in Stutterheim: • A participatory bond will be accessed to finance the construction. 70% of the

capital will be from the bond and 30% from the developers own contribution. • Interest on the repayment will be at prime (taken at an average of 14%) for a

period of 10 years. • The value of the lease payment is assumed to be equal to the annual value of

current rates and taxes payable to the municipality for the given value of the property.

• Occupancy rates for the period of 10 years will be assumed to be 90% with a total leasable retail area of 2,000m².

Table 6.8 lists the estimated values for the different retail feasibility variables used in this study.

Table 6.8: Retail Feasibility Variables

Variable Value Initial Capital Expenditure Cost R11,000,000 Value of Loan (70% Participatory Bond) R7,700,000 Payment Period 10 years Interest Rate 14% Annual Operational Expenditure R691,350 Annual Expected Rate of Return (AERR) 15% Leasable Retail Space 2000m² Assumed Occupancy Rates 90% Rental Rates per m² per month R129.83

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The following factors could influence the required rental income of the retail complex for the first 10 years: • Obtaining a loan at an interest rate of less than prime (i.e. development loan). • A loan might be taken out over a longer time period increasing the total

amount payable in the long term, but reducing annual payments. (However this is not recommended).

Results indicate that for the first 10 years of retail operation the developer of this convenience centre will require an average monthly rental income of R129.83 for retail space in the centre should they want an annual expected rate of return of 15%. Should however the developer be prepared to break even for the first decade and only capitalise after the repayment period (i.e. AERR = 0%), they would only require an average monthly rental income of R112.89. Without knowing how the project will be packaged and financed it is very difficult to provide accurate fees and estimates. To put into perspective the feasibility of generating such a rental income from a retail centre in Stutterheim, it is important to consider average rental amounts of retail centres in other similarly sized towns or nearby towns. Table 6.9 provides the average monthly rental rates for shopping centres in nearby areas or similarly sized towns in South Africa. Table 6.9 Centres of Comparison: Rental Returns

Variable Value p/month for 50m² East London, Balfour Park R85m² Vredenburg (Western Cape) R82m² Polokwane Market Street R61m² King Williams Town, Stone Towers R135m² King Williams Town, Market Square R120m²

Table 6.9 reflects that in smaller towns the average monthly rental for retail shops of 50m² varies between R60m² to R135m². It should be noted that shops larger than 50m² will likely pay less per m² than amounts indicated above. These figures suggest that a new centre in Stutterheim would require relatively high rental returns (R129.83) to make the development feasible. These indications can only serve as a guide as a potential developer would conduct their own detailed feasibility study before investing in such a project.

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CChhaapptteerr 77:: DDeevveellooppmmeenntt CCoonncceepptt 7.1 Introduction This chapter presents the proposed development concept for the Stutterheim Petro Park, based on the findings of the market research conducted to test the feasibility of developing a new filling station with associated retail and tourism arts and crafts centre in Stutterheim. 7.2 Potential for a Petro Park in Stutterheim Two components of the proposed Stutterheim Petro Park were researched, namely the: • Filling station complex; • Retail Centre with a tourism arts and crafts centre These two economic activities are expected to compliment each other if built as a part of the same development. The transient market may be attracted to the filling station (over the others in Stutterheim) if retail and tourism related activities are located in close proximity to the station and the local market may purchase fuel at the station while they are purchasing retail products. Demand modelling has shown that there is a demand of roughly 1,800m2 of additional retail in Stutterheim in 2008; this will grow to 3,000m2 in 2010. The market research has also shown that a tourism information office could add value to the development, offering arts and crafts for sale could potentially attract a larger segment of the tourism market to stop at the site.1 For this reason, it is recommended that the first phase of retail development comprise of 1,900m2 GLA (i.e. a local convenience centre), with additional space for a tourism information office and arts and crafts shop. It is recognised that additional retail space may be required in future and the detailed design of the facility should take future expansion into account. Demand modelling for fuel has shown that optimistically, there is a net effective demand for 132,152 litres per month in Stutterheim, but this could be as low as zero if one assumes that the existing petrol stations pump according to demand. At present some vehicles, particularly large trucks and buses, find it difficult to obtain fuel in Stutterheim because of the size and layout of existing stations. There is potential for the Petro Park to capture some of this latent potential, although other factors also influence the decision to purchase fuel in Stutterheim.

1 eScape the recently re-branded tourism information centre has shown particular interest in relocating to a site on the N6 highway in order to attract the attention of the transient market moving through the area. It is currently located in Hill Street a far distance from the town’s main through route. Along with ASPIRE they have identified the Petro Park as an ideal location for the establishment of a new tourist information centre with associated arts and crafts displays/retail.

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At present there is therefore insufficient demand for a new filling station in Stutterheim based new growth in the area. If a new filling station is built in Stutterheim it would be dependent on capturing a significant market share from the existing filling stations in town. This situation may change in future, depending on the rate at which Stutterheim grows. A new filling station in Stutterheim should comprise of the following: • 24 hour Service • Four to Six Mixed Petrol/Diesel Pumps (Light vehicle access) • Separate Diesel Pump (Heavy vehicle access) • Convenient truck access2 • Convenience Store & ATM facility • Car wash3 • Ablution facilities • Sufficient parking 7.3 Synthesis The proposed Amahlathi Petro Park development is a mixed use development mainly comprising of a filling station, retail and tourism with arts and crafts centre. The table below presents the different components of the development with estimated sizes.4 These have been used to model the potential economic impact of the Petro Park in Chapter 8.

Land Use Activity Approximate Size

Filling Station

Filling station 500m²

Car Wash 60m²

Convenience shop, ATM and toilets 180m2

Retail and Tourism Centre

Retail centre, including a sit-down restaurant 1,900m2

Tourism Office and arts and crafts centre 100m2

Play park (outside) 150m2

Infrastructure

150 parking spaces 3,500m2

Two dedicated bus stops with shelters on one side 300m2

Double lane traffic circle 25m by 45m

2 This could potentially increase the demand for fuel in Stutterheim as larger trucks cannot easily fill up and stop-off at existing stations as access is restricted, being so close to the CBD. 3 The demand for a car wash did not come out strongly in the surveys conducted, however the client requested that the car wash be included in the development concept and impact modelling. A car wash would compliment the other proposed facilities and none of the 3 existing filling stations in Stutterheim have a car wash. 4 These are indicative sizes and will be confirmed when the detailed design and layout of the facility is completed.

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CChhaapptteerr 88:: EEccoonnoommiicc IImmppaacctt AAsssseessssmmeenntt 8.1 Introduction The purpose of this chapter is to present the economic impact that the proposed Amahlathi Petro Park complex is anticipated to have on the regional economy. These outcomes will be incorporated into the Environmental Impact Assessment process that is currently being completed. The anticipated economic impact is quantified in terms of 1) value added or gross geographic product (GGP) 2) business output or sales volumes 3) employment opportunities 4) government revenue 5) impact on municipal income and 6) the impact on existing petrol stations in Stutterheim. These measures can be an indication of improvement in the economic well being of the local community. 1 Two alternatives are presented in this chapter, as there is currently limited demand for another petrol station in Stutterheim; the first alternative models the whole Petro Park complex (i.e. filling station with retail and tourism, arts and crafts centre) while the second alternative considers the impact of the retail and tourism complex excluding the filling station. The economic impacts presented in this chapter should be considered in the context of the local economic and population profiles presented in Chapters Two and Three of this report respectively. 8.2 Current Status of the Site In the prefeasibility study conducted by Nzelenzele Preston and Medcalf, 2008 two sites were assessed to determine the ideal location for the proposed development (Refer to Map 8.1 on following page). The study recommended that Site A would be more suitable for the development because of various factors – thus this chapter only considers the economic impacts associated with the construction and operation of the development on Site A.2 According to the Amahlathi Local Municipality, to whom Site A currently belongs, they have been approached in the recent past from several private investors who have expressed a desire to purchase and/or lease the land in order to develop a residential or retail complex. This reflects that there is a general interest for future development on the site by the private sector.

1 Refer to Annexure 1 for a comprehensive description of the Economic Impact Assessment modelling process. 2 The economic impact of the proposed development on Site B is anticipated to be almost identical to that of Site A.

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Figure 8.1 indicates the location of both Sites A and B. Figure 8.1: Location of Site A and Site B

Source: Nzelenzele Preston and Medcalf, 2008

The following characteristics describe the current status of the proposed site (Site A) for the Petro Park Development. • The site is owned by the Amahlathi Local Municipality and the intention is for

the land to be leased by means of a negotiated long-term lease agreement with the municipality.

• Soil tests reveal the site is geotechnical suitable for the development and placement of fuel storage tanks.

• A storm water detention facility will need to be constructed on site to control storm water run-off.

• There is suitable water supply connection to the site via a 110mm water main in the north western corner of the site.

• A new sanitation facility will need to be constructed within the building lines of the adjacent ambulance depot.

• The site is gently sloping from North to South in some places, while relatively flat in others making it suitable for new development.

• Accessibility to the site will be through a newly developed double lane traffic circle on the N6 highway adjacent to the site and west of the existing R346 intersection.

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8.3 Description of Development The proposed Amahlathi Petro Park development is a mixed use development mainly comprising of a filling station, retail and tourism with arts and crafts centre. The preliminary design of the development encompasses:

Land Use Activity Approximate Size

Retail and Tourism Centre

Retail centre, including a sit-down restaurant 1,900m2

Tourism Office and arts and crafts centre 100m2

Play park (outside) 150m2

Filling Station

Filling station 500m²

Car Wash 60m²

Convenience shop, ATM and toilets 180m2

Infrastructure

150 parking spaces 3,500m2

Two dedicated bus stops with shelters on one side 300m2

Double lane traffic circle 25m by 45m

8.4 Assumptions and Cost Estimates The following section describes the various capital expenditure and operational expenditure assumptions made in modelling the impact of the proposed development.3 8.4.1 Construction Phase Assumptions The construction cost assumptions presented for this development are reflective of current 2008 values. It was assumed that the majority of construction workers particularly unskilled and semiskilled will be residing on site. It is assumed that the total capital expenditure required for the filling station and retail development will total R18,1 million and R12,95 million excluding the filling station, car wash, convenience shop and toilets. This excludes the cost to purchase land as it is assumed that the land will be leased to the developer. It is important to note that these assumptions are preliminary and considered to be as realistic as possible given the available information regarding the project. Certain deviations from these assumptions are possible when the detailed design is completed.

3 Detailed costings have not yet been done for the proposed development by a Quantity Surveyor or Engineer. For this reason CAPEX and OPEX assumptions were made and approved by ASPIRE.

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The capital expenditure assumptions are provided in Table 8.1. Table 8.1 Estimated Capital Investment

Capital Expenditure Size (m²) Cost excl VAT

Retail and Tourism Centre: Tourism Office 100m² R 550,000 Retail centre 1900m² R 10,450,000 Play park (outside) 150m² R 150,000 Filling Station: Car Wash 60m² R400,000 Filling Station 500m² R 3,840,000 Convenience Shop 180m² R 990,000 Infrastructure: Services/Paving/Roads4 - R1,800,000 Alternative 1: Total CAPEX Costs R 18,180,000 Alternative 2: Total CAPEX Costs, excluding Filling Station

R 12,950,000

8.4.2 Operational Phase Assumptions It is estimated that once all commercial components of the proposed development are complete and reach full operation the total annual operational expenditure will be approximately R17.042 million5. Table 8.2 provides information on the estimated cost of sales of the Petro Park. Table 8.2: Estimated Direct Operational Expenditure

Operational Expenditure Size (m²) Cost ex VAT

Retail and Tourism Centre: Tourism Office 100m² R250,000 Retail centre 1900m² R13,300,000 Play park (outside) 150m² R0 Filling Station: Car Wash 60m² R780,000 Filling Station 500m² R1,834,560 Convenience Shop 180m² R877,500 Maintenance: - R1,373,760 Alternative 1: Total OPEX Costs R17,042,060 Alternative 2: Total OPEX Costs, excluding Filling Station R14,135,000

4 This cost includes storm water detention and sewerage facilities. 5 This OPEX figure does not account for expenditure of municipal rates and taxes (should the land be purchased by the developer) nor does it account for the possible annual lease amount to be paid to the municipality as this amount could not be estimated.

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Table 8.3: Total Labour Expenditure Labour OPEX Permanent Cost/ annum

Alternative 1 Highly skilled 8 R 2,600,000 Skilled 15 R 1,852,500 Semi- & unskilled 74 R 2,501,200 Total Alternative 1 97 R 6,953,700 Alternative 2 Highly skilled 6 R 1,950,000 Skilled 11 R 1,358,500 Semi- & unskilled 50 R 1,690,000 Total Alternative 2 67 R 4,998,500

The following assumptions were used estimate annual salaries per skill level (including 13th check): • Highly skilled – R325,000 • Skilled – R123,500 • Semiskilled/unskilled – R33,800 8.5 Construction Phase Impact Assessment The following section describes the direct and indirect economic impact of the construction of the proposed Petro Park on the local and regional economies. The following should be noted when interpreting the following tables: • Tables 8.4-8.7 refer to the direct, indirect and total economic impacts of the

construction phase of the proposed development (i.e. excluding the operational impacts).

• The construction phase direct and indirect impacts are once off impacts that will occur for the duration of the construction of the development.

8.5.1 Increase in New Business Sales The construction of the Amahlathi Petro Park will involve site and infrastructure development, building construction, installation of machinery and equipment, landscaping, and other business activities related to the construction of the proposed development. This would create a positive impact on the local and regional economies, as the demand for products and services used in construction will create new business sales. Table 8.4 Impact on New Business Sales

Direct Impact Indirect Impact Total Impact Retail and Tourism Centre: Tourism Office R 643,000 R 1,096,000 R 643,000 Retail centre R 12,210,000 R 20,827,000 R 33,037,000 Play park (outside) R 175,000 R 299,000 R 474,000

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Filling Station: Convenience Shop R 1,157,000 R 1,973,000 R 3,130,000 Car Wash R 467,000 R 798,000 R 1,265,000 Filling Station R 5,560,000 R 4,918,000 R 10,478,000 Infrastructure: Services/Paving/Roads R 2,103,000 R 3,588,000 R 5,691,000 Total Alternative 1 R 22,315,000 R 33,499,000 R 55,814,000 Total Alternative 2 R 15,131,000 R 25,810,000 R 40,941,000

Through the direct impact, the proposed project is set to generate R22,3 million of new business sales (2008 prices, excl. VAT). Furthermore, through the spin-off effects arising from the increased demand for goods and services of sectors supporting the development of Amahlathi Petro Park, production during the same period will increase by an additional R33,5 million. In total, the Amahlathi Petro Park Development should increase new business sales by R55,8 million during the construction period. Should the filling station not be constructed, total new business sales as a result of construction will amount to approximately R41 million. Impact: Increase in new business sales during construction

Nature

The impact is direct and indirect and is generated through capital expenditure that shocks the economy. It results in an increase in economic activities of directly and indirectly affected businesses.

Status Positive Extent National

Duration Short term Intensity Medium

Probability Highly Probable Degree of confidence Medium

Significance (no mitigation)

Medium

Mitigation

In order to optimise the stimulation of the economy through direct and indirect effects, the following should be applied where possible:

• Procure construction materials, goods, and products from local suppliers if feasible.

• Employ local contractors where possible. Significance (with

mitigation) Medium

8.5.2 Increase in GGP Along with the increase in new business sales, the GGP regionally and nationally will grow. The GGP is the total value added to a region as a result of a capital investment such as this.

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Table 8.5: Increase in GGP Direct Impact Indirect Impact Total Impact Retail and Tourism Centre Tourism Office R 88,000 R 230,000 R 318,000 Retail centre R 1,670,000 R 4,373,000 R 6,043,000 Play park (outside) R 24,000 R 63,000 R 87,000 Filling Station: Convenience Shop R 158,000 R 415,000 R 573,000 Car Wash R 64,000 R 167,000 R 231,000 Filling Station R 763,000 R 1,150,000 R 1,913,000 Infrastructure: Services/Paving/Roads R 288,000 R 753,000 R 1,041,000 Total Alternative 1 R 3,055,000 R 7,151,000 R 10,206,000 Total Alternative 2 R 2,070,000 R 5,419,000 R 7,489,000 The development of the Amahlathi Petro Park will directly increase the region’s GGP by approximately R3 million, but could have a total impact of over R10 million. If the filling station is not developed then the total impact is expected to be R7,5 million. Impact: Increase in GGP during Construction

Nature

The impact is direct and indirect and is generated through capital expenditure that shocks the economy. It results in an increase in economic activities of directly and indirectly affected businesses.

Status Positive Extent National

Duration Short term Intensity Medium

Probability Highly Probable Degree of confidence High

Significance (no mitigation) Medium

Mitigation To increase the positive impacts on the local economy employ local companies and suppliers where possible.

Significance (with mitigation) Medium

8.5.3 Impact on Employment Table 8.6 provides information on the employment opportunities that are expected to be generated during the construction of the Amahlathi Petro Park. Table 8.6: Impact on Employment Direct Impact Indirect Impact Total Impact Retail and Tourism Centre Tourism Office 3 2 5 Retail centre 52 39 91 Play park (outside) 1 0 1

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Filling Station: Convenience Shop 5 4 9 Car Wash 2 1 3 Filling Station 7 11 18 Infrastructure: Services/Paving/Roads 9 7 16 Total Alternative 1 79 64 143 Total Alternative 2 65 48 113 The construction of the new development will create about 79 direct employment opportunities for the construction workers and professionals involved in the development. The indirect employment positions created as a result of construction are likely to be both local positions and positions created outside of the municipality, this dependent on the number of local products sourced as inputs for the development’s construction. A total of 143 employment opportunities are expected to be created for the given construction period if the entire complex is built, and 113 will be created if the filling station is not built. This is particularly relevant to the unemployed project-affected people who are within the working age, but who do not work due to the inability to find work. The current unemployment level in Amahlathi stands at a high 31%. It is expected that the proposed development will assist in decreasing the unemployment level in the area, although this positive impact will only be felt in the short term. Workers and particularly those who are characterised as unskilled or semiskilled will benefit from the employment by acquiring new skills and improving their ability to earn an income after the project or their tasks are complete. Impact: Employment during Construction

Nature

The impact is direct and indirect and is generated through capital expenditure that shocks the economy. It results in an increase in economic activities of directly and indirectly affected businesses, which subsequently leads to the creation of new employment opportunities.

Status Positive Extent National

Duration Short term Intensity Medium

Probability Probable Degree of confidence High

Significance (no mitigation) Medium

Mitigation

The following is recommended to enhance the benefits of the created employment in the local area where feasible: • Employ labour-intensive methods in construction. • Employ local residents and communities, where

possible. • Sub-contract to local construction companies,

where possible.

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• Utilise local suppliers, where possible. Significance (with

mitigation) Medium 8.5.4 Government Revenue Impact As a result of the construction of the Amahlathi Petro Park there will be both direct and indirect contributions of various forms of tax generated by government for the period of construction. Table 8.7 provides the total government revenue created for construction. Table 8.7: Government Revenue Impact

Direct Impact Indirect Impact Total Impact Total Alternative 1 R 1,249,640 R 1,875,944 R 3,125,584 Total Alternative 2 R 847,336 R 1,445,360 R 2,292,696 The total amount of tax generated for the construction period is expected to be R3,1 million. Should the filling station not be constructed total, tax generated is expected to be 26% lower over 12 month period of construction. Impact: Government Revenue during Construction

Nature

The impact is direct and indirect and is generated through capital expenditure that shocks the economy. It results in an increase in taxes paid by all companies involved in the construction of the development.

Status Positive Extent National

Duration Short term Intensity Medium

Probability Probable Degree of confidence High

Significance (no mitigation) Medium Mitigation n/a

Significance (with mitigation) Medium

8.6 Operational Economic Impacts The following section describes economic impacts that would be observed during the operational phase of the project. Unlike capital expenditure impacts which are short term, these impacts are assumed to be sustainable and long-term provided the development is fully functional. The figures therefore reflect annual impacts that will be experienced during each year of operation. 8.6.1 Increase in New Business Sales As indicated in Table 8.8, it is anticipated that the proposed Petro Park will generate approximately R47,9 million of new business sales per annum.

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Table 8.8: Increase in New Business Sales Direct Impact Indirect Impact Total Impact

Retail and Tourism Centre: Tourism Office R 347,000 R 391,000 R 738,000 Retail centre R 16,206,000 R 18,404,000 R 34,610,000 Filling Station: Filling Station6 R 2,235,000 R 2,539,000 R 4,774,000 Car Wash R 950,000 R 1,079,000 R 2,029,000 Convenience Shop R 1,069,000 R 1,214,000 R 2,283,000 Management R 1,707,000 R 1,744,000 R 3,451,000 Total Alternative 1 R 22,514,000 R 25,371,000 R 47,885,000 Total Alternative 2 R 15,131,000 R 25,810,000 R 40,941,000 About two thirds of new business sales are expected to be generated by retail components alone within the Petro Park, this amounts to R15,131 million of the total R22,514 generated by the whole Petro Park. The operation of the Petro Park will also create additional demand for services and goods that are required to maintain its operations, which could result in the generation of new business sales in the local Amahlathi municipality; however most products supplied to the development are expected to come from businesses outside of the local municipality. The local businesses that will be expected to benefit from this development in this case will include: • Food and beverage manufacturing industries • Local Craft Producers • Local Tourism Products (i.e. Guesthouses, Bed and Breakfasts, Museums, as

well as other local projects such as Mlungisi Commercial Park and the Woodhouse project etc.)

Through indirect effects, business will experience an increase in annual sales by an additional R25,4 million. Impact: Increase in new business sales during operation

Nature

The impact is generated through annual operating expenditure of the commercial components of the proposed development. They stimulate economic activities of directly and indirectly affected businesses, which subsequently leads to the creation of new business sales.

Status Positive Extent National

Duration Long term Intensity Medium

Probability Highly probable Degree of confidence High

Significance (no Medium

6 Turnover of filling station is calculated assuming that the station will pump on average 350 000 litres of fuel per month.

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mitigation)

Mitigation

The Petro Park should be encouraged to procure materials, goods and products required for the operation of their businesses from local suppliers where possible.

Significance (with mitigation) Medium

8.6.2 Impact on GGP When operational, the proposed development will generate approximately R13,9 million in value adding. Table 8.9: Impact on GGP Direct

Impact Indirect Impact

Total Impact

Retail and Tourism Centre Tourism Office R 69,000 R 88,000 R 157,000 Retail centre R 6,557,000 R 3,429,000 R 9,986,000 Filling Station Component Filling Station R 905,000 R 473,000 R 1,378,000 Car Wash R 385,000 R 201,000 R 586 ,000 Convenience Shop R 433,000 R 226,000 R 659,000 Management R 785,000 R 307,000 R 1,092,000 Total Alternative 1 R 9,134,000 R 4,724,000 R 13,858,000 Total Alternative 2 R 7,570,000 R 3,925,000 R 11,495,000

The 2007 GGP of Amahlathi stands at approximately R1 billion, thus the operation of such a development in 2008 would have the potential to increase the municipality’s GGP by roughly 1%. Impact: Impact on GGP during Operation

Nature

The impact is generated through annual operating expenditure of the commercial components of the proposed development. They stimulate economic activities of directly and indirectly affected businesses, which subsequently leads to the generation of value added.

Status Positive Extent National

Duration Long term Intensity Medium

Probability Highly probable Degree of confidence High

Significance (no mitigation) Medium

Mitigation

The Petro Park should be encouraged to procure materials, goods, services and products required for the operation of their businesses from local suppliers where possible.

Significance (with Medium

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mitigation) 8.6.3 Impact on Employment It is estimated that the new development will create 97 direct sustainable job opportunities, of which the majority will be in the retail component of the development. The creation of sustainable job opportunities will have a small but positive contribution to the decrease of unemployment in Amahlathi. Table 8.10: Impact on Employment Direct Impact Indirect Impact Total Impact Retail and Tourism Centre Tourism Office 2 2 4 Retail centre 59 51 110 Filling Station Filling Station 21 18 39 Car Wash 3 3 6 Convenience Shop 6 5 11 Management 6 6 12 Total Alternative 1 97 84 181 Total Alternative 2 67 59 126 The distribution of direct employment in terms of skills levels is expected to be as follows: • Highly skilled – 8% • Skilled – 15% • Semiskilled and unskilled – 75% The creation of employment opportunities at the new Petro Park could also bring substantial benefits to the project-affected community. The developer should be committed to encourage the local unemployed residents to apply for available positions. Potentially they could be employed as filling station attendants, retail staff or general maintenance workers. The increase in business activities in the area will likely stimulate the creation of new employment opportunities in other sectors to the extent of 84 positions. Impact: Employment during Operation

Nature

The impact results from operational expenditure of commercial components of the Petro Park and businesses indirectly affected by operations. The operation will create sustainable employment opportunities at directly created new businesses and businesses indirectly affected by operations.

Status Positive Extent National

Duration Long term Intensity Medium

Probability Highly probable

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Degree of confidence High Significance (no

mitigation) Medium

Mitigation

• Maintain a database of available positions at the Petro Park and a database of employment seekers at the project-affected community

• Encourage local residents to apply for available positions at the Petro Park.

• Local Municipality to establish link with relevant SETA’s and government departments that can provide training in the identified business and employment creation sectors.

Significance (with mitigation) Medium

8.6.4 Government Revenue Impact Table 8.11 indicates the annual amount of tax that will be contributed by the development to government revenue. 8.11: Government Revenue Impact Direct Impact Indirect Impact Total Impact Total Alternative 1 R 1,260,784 R 1,420,776 R 2,681,560 Total Alternative 2 R 1,046,752 R 1,179,416 R 2,226,168 The Petro Park is this expected to annually generate R2,7 million to government revenue. This includes and is not limited to value added tax (Vat.), personal income tax and business tax. Should however the filling station component of the complex not be constructed then it would contribute approximately R2,2 million annually. Impact: Government Revenue during Operation

Nature

The impact is generated through operational expenditure into the economy. It results in an annual increase in taxes paid by all businesses operating from the Petro Park as well as associated/supporting businesses.

Status Positive Extent National

Duration Long term Intensity Medium

Probability Probable Degree of confidence High

Significance (no mitigation) Medium Mitigation n/a

Significance (with mitigation) Medium

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8.7 Municipal Income Impact The land on which the development is set to take place is currently owned by the Amahlathi Municipality and a future investor would sign a long term lease with the municipality to develop and operate on-site. The precise value of the lease amount will be determined through negotiations with the municipality and will be influenced by the price of the land as well as the infrastructure included. Impact: Municipal Income

Nature The lease payments paid by a potential owner of the development will increase the municipal income during operation of the Petro Park.

Status Positive Extent National

Duration Long term Intensity Medium

Probability Probable Degree of confidence High

Significance (no mitigation) Medium

Mitigation

The municipality needs to insure that it receives maximum benefit from the operation of the Petro Park albeit through rates and taxes or lease payments. At the same time it needs to insure that the owner or developer of such a project is not financially burdened by municipal payments so that the development is unsustainable.

Significance (with mitigation) Medium

8.8 Operational Impact of New Petro Park on Retail in Stutterheim With the proposed development of a 1,900m² retail facility it is anticipated that there could be a degree of negative impact experienced by existing retailers in town (i.e. Main Street) if people prefer to go to the new centre rather than purchase goods in town. The overall impact of the new retail centre in Stutterheim is however, expected to be positive due to specific characteristics of the local market. Currently Stutterheim experiences a high level of retail leakage, i.e. the local market purchases a large portion of their goods outside of Stutterheim due to among other things a current lack of retail variety in the town. With the development of a new complex it is expected that the current retail leakage would be reduced and people would purchase more items in Stutterheim compared to before. Due to the proposed location of the retail complex, it is also expected that the retail centre would draw at a larger portion of the transient market passing through the town, as the Petro Park would be far easier to gain access to, compared to existing retailers in the CBD. Therefore the new complex is expected

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to attract a new market rather than merely competing for a proportion of the existing market share. 8.9 Operational Impact of New Petro Park on Existing Stations The market feasibility conducted for the Amahlathi Petro Park found that there is currently insufficient demand to sustain the operation of four filling stations in Stutterheim. It found that if a new fuel station were built it is likely that one or more of the three existing stations would be negatively impacted, as they would lose their market share. All three existing stations in Stutterheim pump much less than the 350 000 litre volume per month which is considered to be a successful small station output by South African oil companies (Refer to Table 8.13). Some of the reasons why demand for fuel in Stutterheim is so low include that many locals purchase much of their fuel in nearby towns like East London and King Williams Town, as they either work in these towns or conduct much of their retail and business activities there. Much of the transient market does not acquire fuel in Stutterheim due to the close proximity of the town to East London, which serves as the main point of departure and final destination on the N6. An additional filling station in Stutterheim would provide both the local and transient market passing through the town with better filling station facilities than are currently available. For example, none of the existing stations has a large convenience store, nor do any have a car wash facility or adjacent retail facilities. Large vehicles cannot access the existing stations easily because of the size and layout of the stations and as such Stutterheim does not capture much of the heavy vehicle market. The new station could provide better facilities for heavy vehicles and grow this market share. Table 8.12 provides an indication of the current employment of existing stations compared to the newly proposed filling station. Table 8.12: Stations’ Employment Figures

Station Name Filling Station

Employees Other

Employees Total

Employees

BCN Motors 12 0 12

Stutterheim Garage

11 10 21

Blom’s Motors 8 14 22

Proposed New Station

21 9 30

BCN Motors (unlike Blom’s Motors and Stutterheim Garage) relies solely on the sale of fuel and a small tuck shop for income generation. Blom’s motors and Stutterheim both have a workshop which accounts for approximately half of their business’ income. As both of these stations pump fewer litres per month compared to BCN Motors it is predicted that these stations will experience the

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greatest negative impact should a new filling station open in the town (Refer to Table 8.13). It is estimated that 21 employees would be required to operate the proposed Petro Park filling station. This amount is slightly more compared to the number of employees that existing stations employ in their filling stations as it has been assumed that the proposed station will pump at minimum 350 000 litres of fuel per month which is considerably higher than any of the current stations pump, therefore requiring additional staff to man the station. Should either Blom’s or Stutterheim Garage be forced to close as a result of a new filling station being established in Stutterheim, 8 to 11 permanent employment positions could be lost. If both stations were to close approximately 19 permanent employment positions would be lost. This means that the new filling station could potentially only have a net positive impact of 2 employment positions (if considering the filling station in isolation) if the new station causes the two smaller stations in Stutterheim to close down. It should be noted that the proposed car wash and convenience store components of the filling station will create nine additional permanent employment opportunities. Table 8.13 estimates the total revenue generated by existing stations from petrol sales based on a standardised distributor margin of 6% and a current average fuel price (Petrol and Diesel) of R9.60. Table 8.13 Existing Stations Estimated Annual Revenue Generated

Station Name Ave. Current Volume Sold

p/Month (Litres)7 Current Monthly Estimated

Revenue on Fuel Sales

BCN Motors 250 000 R144 000

Stutterheim Garage

200 100 R115 257

Blom’s Motors 102 500 R59 040

Total 552 600 R318 297

Should either Stutterheim Garage or Blom’s Motors close as a result of the development of a new station then it can be assumed that each of the stations would incur a loss of R115,257 and R59,040 per month respectively. It is assumed though that any income generation by one of these stations would be recouped by the new station. Apart from the possible loss in employment as a result of one or more of the existing filling stations closing down, the closure of one or more existing stations would also have a negative impact to the economy in terms of new business sales, contribution to GGP as well as contribution to government revenue. However, the net economic impact is still expected to be positive given the positive impact the new filling station will have on the economy of Stutterheim.

7 Obtained from official records provided by owners

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As both Blom’s Motors and Stutterheim garage do not rely purely on income generation from fuel sales alone, both businesses would not necessarily close altogether should the filling station component of their business close. The may wish to expand upon their workshops and other business components to make these their core functions. Impact: Existing Stations

Nature The development of a new filling station in Stutterheim is expected to have a detrimental impact on existing stations.

Status Negative Extent Local

Duration Long term Intensity Medium

Probability Highly Probable Degree of confidence High

Significance (no mitigation) Medium

Mitigation

• It is possible that if one or more stations were to close, then the employees of these stations could be accommodated as employees of the new filling station as they would have the appropriate skills required for such work.

• Another option would be to encourage an existing station to move their business to the Petro Park; however engagements with the existing station owners indicate that this is unlikely to occur.

Significance (with mitigation) Medium

8.10 Opportunity Costs and Potential Risks of the Development There are opportunity costs and risks associated with not constructing the filling station and related facilities as a part of the Petro Park. Tables 8.12 and 8.13 reveal the total capital and operational opportunity costs for should the filling station not be established within the complex. It is important to note that the tables below do not take into account the potential negative impact of the development on existing filling stations (see Section 8.9 above). The opportunity cost of not developing the filling station is therefore actually lower than what is presented in Table 8.15. Table 8.14: Total Capital Expenditure Opportunity Costs

Indicator Total Direct Opportunity Costs8 New Business Sales R 7,004,000 GGP R 985,000 Employment Opportunities 14

8 For given construction period, estimated to be 12 months

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Government Revenue R 402,304 If the filling station is not included in the development, 14 less employment opportunities will be created over the construction period and the regional economy will loose almost R1 million in contribution to GGP. Table 8.15: Total Operational Expenditure Opportunity Costs

Indicator Total Direct Opportunity Costs9 New Business Sales R 7,383,000 GGP R 1,564,000 Employment Opportunities 30 Government Revenue R 214,032 Should the filling station not be developed together with the retail centre it is estimated that region will loose approximately R7,4 million in direct business sales per year of operation along with 30 direct permanent employment opportunities.10 The filling station is expected to contribute 21% of the Petro Park’s direct business sales and 17% of the complex’s contribution to regional GGP, which is relatively small. Should the filling station be developed within the complex and there is insufficient demand to sustain a station of this size, it is anticipated that the opportunity costs reflected in Table 8.15 would also be reduced. Some of the risks involved in not including the filling station in the development include: loss of income for retail complex because the complimentary land use is not on site, site may not develop into such a large development node if the filling station is not on site. While there are risks to not including the filling station in the development, there are also risks if the filling station is developed, including: potential closure of one or more existing filling stations in Stutterheim with the associated job losses and loss of income and there may be insufficient demand to enable the filling station to pump 350,000 litres of petrol per month (benchmark for a viable station). 8.11 Synthesis In total, the establishment of the Petro Park will lead to the generation of R55.8 million in business sales during the anticipated 12 month construction period. This will translate into R10.2 million of value added. The development of the Petro Park will create about 79 direct employment opportunities during the construction phase. The project-affected community will

9 Operational Costs reflected per annum 10 Calculations based on the assumption that the filling station pumps on average 350 000 litres of fuel per month.

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directly benefit from the proposed development as it will create new employment opportunities for the locals, particularly those who are unskilled and semi-skilled. In addition to the above impacts, the proposed development will have a long-term beneficial impact on the local economy as it will diversify the economic activities that are currently taking place in the area. There is set to be direct annual increases in value added to the region of R3.1 million resulting from anticipated direct business sales of R22.5 million. New direct permanent employment opportunities at the Petro Park are estimated to be 97. The net impact associated with the retail component of the development are expected to be positive due to the significant leakage of retail expenditure out of Stutterheim at present and the expectation that the complex will also draw new market share rather than depending primarily on capturing the existing retail market share from other retailers. The net impact of the filling station component is also expected to be positive, although the extent of the positive impact is dependent on how the new station impacts on the existing stations. It will be important that the new Petro Park be able to grow the current market share, rather than depending on capturing the existing market share, to mitigate against potential negative impacts on the existing stations. If one or two existing stations were to close, this would contribute towards the feasibility of the new filling station (and other remaining stations) because they would capture the demand from the station(s) that have closed. It has been shown that if the filling station were not implemented as part of the Petro Park, the opportunity cost is relatively small. This confirms that most of the positive economic impacts associated with the Petro Park will be derived from the retail centre. The risks associated with constructing the filling station are primarily related to the potential negative impact on the existing filling stations. The risks associated with not constructing the filling station relate to the potential negative impact on the retail facility and the development of a new and vibrant development node in Stutterheim. Apart from quantifiable impacts stated above there is very likely to be unquantifiable benefits experienced by the municipality. For example the local tourism industry is likely to grow as a result of the Petro Park as well as local community projects such as Mlungisi Commercial Park and Woodhouse Project. The local community is also set to benefit through up-skilling as a result of the employment opportunities at the PetroPark.

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CChhaapptteerr 99:: RReeccoommmmeennddaattiioonnss Given the outcomes of the market research and economic impact modelling exercise, it is recommended that the Petro Park development be implemented in a phased approach. There is currently demand for additional retail in Stutterheim. It is recommended that the retail centre at least have a convenience grocery store, a sit-down restaurant and a take-away facility. The tourism office and arts and crafts facility could move into the new retail centre in the short term. The retail facility should have between 8-15 shops and be constructed on one level (i.e. ground floor retail). There is currently insufficient demand for a new filling station in Stutterheim based new growth in the area and demand for fuel in Stutterheim is currently relatively small overall. The opportunity cost of not developing the filling station is relatively small compared to the retail component. For these reasons it is recommended that the feasibility of a filling station in Stutterheim be investigated again in the medium term; i.e. Phase 2 of the development. Table 9.1 illustrates the recommended phasing of the development to ensure its sustainability. Table 9.1: Phasing of the Development

Phasing Land Use Activities

Phase 1 - 2009

• 1,900m2 retail centre • Tourism office and arts and crafts centre • ATM • Toilet facilities • 150 parking spaces • Play park (outside)

Phase 2 – 2011*

• Filling station • Car Wash • Convenience shop, ATM and toilets • Two dedicated bus stops with shelters on one side

*Depending on future demand

The following should be considered when implementing Phase 2 of the development, namely: • Sufficient parking space should be assigned to cater for light vehicles around

the filling station. • Access to the petrol filling station should be convenient and safe, designed

according to acceptable engineering standards. • Sufficient signage should support the development, in order to be seen from a

reasonable distance at a reasonable speed

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• The design should adhere to the specifications and approval of the South African National Roads Agency Limited (SANRAL).

• Sufficient manoeuvring space should be provided to accommodate heavy articulated vehicles.

The filling station and retail components are anticipated to compliment each other if built as a part of the same development. The transient market may be attracted to the filling station (over the others in Stutterheim) if retail and tourism related activities are located in close proximity to the station and the local market may purchase fuel at the station while they are purchasing retail products. If the PetroPark is developed in a phase approach, and is designed based on market demand, then it is likely that the development as a whole will be feasible and can contribute meaningfully to sustainable growth and development in Stutterheim.

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AAnnnneexxuurree 11:: QQuuaalliittaattiivvee DDiissccuussssiioonn GGuuiiddeelliinneess 1.1 Filling Station Owner Interviews Station owners were interviewed in Stutterheim, Cathcart and Queenstown. The following components were discussed in each of the station owner interviews:

1. History of their fuel operation 2. Views regarding Stutterheim as a service centre 3. Components of their business 4. Market description of their stations (Diesel/Petrol); (Transient/Local) 5. Capacity of their stations (Tanks) 6. Average Monthly Fuel Pumped 7. Future development/expansion intentions 8. Thoughts on the establishment of a new fuel station in Stutterheim 9. Thoughts on the establishment of a retail centre in Stutterheim

1.2 Transport and Freight Company Information The following standard questions were posed to each logistics manager for each of the transport and freight companies interviewed:

1. On the N6, where do their trucks/busses currently fill-up or stop to take breaks? Why do they stop where they do?

2. What is their opinion of Stutterheim as a fuel-filling location? 3. Do their vehicles ever stop in Stutterheim to purchase fuel? Why/Why not? 4. If there were incentives in place for their vehicles to fill-up in Stutterheim,

would they do so? 5. Do they currently have any fuel-filling arrangements with garages along

the N6?

1.3 Fuel Company Interviews The following components were discussed in each of the fuel company interviews:

1. Criterion for the establishment of a new filling station franchise i.e. market, location, traffic count etc

2. Different Franchise Models i.e. privately owned stations, fuel company owned stations

3. Construction cost of franchise 4. Operational costs of franchise 5. Opinions of Stutterheim as a location for a new franchise opportunity

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AAnnnneexxuurree 22:: MMaarrkkeett SSuurrvveeyyss

AMAHLATHI PETRO PARK LOCAL MARKET SURVEY

FIELDWORKERS NAME: _______________________ TEL NO: _____________________ TIME TAKEN TO COMPLETE SURVEY: _________________________ INTRODUCTION Urban-Econ Eastern Cape has been appointed by ASPIRE to undertake a Market Research and Feasibility Study for the establishment of a service complex including a filling station, retail facilities, tourism and arts and craft centre and related amenities in Stutterheim. Please assist us in answering the following questions. All your responses will be kept confidential, your time is appreciated! SECTION A: BACKGROUND INFORMATION 1. Name: __________________________________________________ Q1 2. Contact number: __________________________________________________ Q2 3. No. of people in household: __________________________________________ Q3

4. Please indicate which category best describes your household Q4

Stay-at home singles 1 New Parents 6 Students 2 Single parent 7 Starting out singles 3 Mature Parents 8 Couples 4 Golden Nests 9 Mature singles 5 Left alones 10

SECTION B: FUEL PROFILE 5. How many vehicles does your household have?

Vehicle Number Petrol (Car) Q5 Petrol (Motorcycle/Scooter) Q6 Diesel (Car/4x4/Double-Cab) Q7 Diesel (Large Truck) Q8 Diesel (Farming equipment) Q9 TOTAL Q10

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6. On average how much do you spend on fuel MONTHLY per vehicle? Q11

No. Petrol (Car) Petrol (Motorcycle/

Scooter)

Diesel (Car/4x4/

Double-Cab)

Diesel (Large Truck)

Diesel (Farming

equipment)

1 R R R R R 2 R R R R R 3 R R R R R 4 R R R R R TOTAL R R R R R 7. In an average MONTH where do you and your family mostly make your fuel purchases?

Town % of Total Fuel

Purchased

Stutterheim Q12 Cathcart Q13 Queenstown Q14 East London Q15 King Williams Town Q16 Other ________________________________

Q17

Other ________________________________

Q18

100% 8. If you purchase a large percentage of petrol outside of Stutterheim, why is this? Q19

9. Which Petrol Station in Stutterheim do you prefer to use, and why do you prefer that specific station? Q20 Station Why? Q21 BP 1 Shell 2 Engen 3

10. Do you think that there is sufficient demand for another Petrol Station Complex in Stutterheim? YES / NO Q22 Yes 1 No 2

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11. Why/Why Not? Q23 SECTION C: FUTURE FUEL COMPLEX PREFERENCES 12. If a new petrol station were to open in Stutterheim what fuel company brand would you prefer to see introduced? Please indicate from the following list your top three desirable brands. Where 1 is most desirable and 3 is the least desirable.

Fuel Company Type Top 3 Ratings

Shell Q24 BP Q25 Caltex Q26 Engen Q27 Zennex Q28 Sasol Q29 Excel Q30 Other __________________________

Q31

Other __________________________

Q32

13. What type of Fast Food Outlet/Sit Down Restaurant would you prefer to see introduced at a new Petro Park? Please indicate from the following list your top three desirable brands. Where 1 is most desirable and 3 is the least desirable. Fast Food Outlet Top 3 Ratings

Steers Q33 Wimpy Q34 Wild Bean Cafe Q35 KFC Q36 Chicken Likin’ Q37 Hungry Lion Q38 Whistle Stop Q39 Other __________________________

Q40

Other __________________________

Q41

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14. Would you utilise any of the following complementary facilities if they were offered at a new Petro Park in Stutterheim?

Rating Complementary Facility Yes Maybe No

Sit Down Restaurant 1 2 3 Q42 Fast Food Outlet 1 2 3 Q43 24hour Convenience Store 1 2 3 Q44 Car Wash 1 2 3 Q45 Auto Repair Workshop (incl. tyres/shocks etc)

1 2 3 Q46

Art and Craft Shop 1 2 3 Q47 Home Industry (Local Produce) Shop 1 2 3 Q48 Tourism Office 1 2 3 Q49 ATM Banking 1 2 3 Q50 Gift Shop 1 2 3 Q51 Post Office 1 2 3 Q52 Other __________________________

1 2 3 Q53

Other __________________________

1 2 3 Q54

15. If a new Petrol Station Complex were to open in Stutterheim, would you utilise this complex? YES / NO Q55 Yes 1 No 2 16. Why/Why Not? Q56

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SECTION D: RETAIL PROFILE 17. On average, how much money do you currently spend, MONTHLY on the following types of retail items?

Category Current Spending

Rand/month Monthly groceries Q57 Top up groceries Q58 Clothing, shoes & accessories Q59 Furniture & homeware Q60 Hardware goods Q61 Personal care (e.g., hair & beauty salon, pharmacy) Q62 Cleaning services (e,g, laundromat) Q63 Restaurants & take-aways Q64 Leisure & entertainment Q65 Speciality goods (e.g. music, sport, baby, stationery) (Please specify)_______________________

Q66

Other (Please specify) ____________________________________

Q67

TOTAL (Monthly RETAIL Expenditure) Q68 18. Do you need to travel to another town (i.e. outside of Stutterheim) in order to obtain any of the following commodities? If so, where are you most likely to purchase the following products?

Category YES NO Town Name

Monthly groceries 1 2 Q69 Q80

Top up groceries 1 2 Q70 Q81

Clothing, shoes & accessories 1 2 Q71 Q82

Furniture & homeware 1 2 Q72 Q83

Hardware goods 1 2 Q73 Q84

Personal care (e.g., hair & beauty salon, 1 2 Q74 Q85

Cleaning services (e,g, laundromat) 1 2 Q75 Q86

Restaurants & take-aways 1 2 Q76 Q87

Leisure & entertainment 1 2 Q77 Q88

Speciality goods (e.g. music, sport, baby, stationery) (Please specify)_______________________

1 2 Q78

Q89

Other (Please specify) ____________________________________

1 2 Q79

Q90

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19. Why do you purchase the above items outside of Stutterheim? (Only answer if applicable) Q91

20. Would you buy these products in Stutterheim if they were available locally? (Only answer if applicable) YES / NO Q92 Yes 1 No 2 21. If no, why not? Q93 SECTION E: RETAIL PREFERENCES

22. Do you believe there is a need for a NEW Retail/Shopping Complex in Stutterheim?

YES / NO Q94 Yes 1 No 2 23. Why/Why Not? Q95 24. Would you utilise a NEW Retail/Shopping Complex, should it be built in Stutterheim?

YES / NO Q96 Yes 1 No 2

25. If NO, please indicate why not? Q97

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26. If a NEW Retail/Shopping Complex, were built in Stutterheim, which brand of retailers would you prefer?

Category Retailer Name

Choice 1 Retailer

Name Choice 2

Monthly groceries Q98 Q109

Top up groceries Q99 Q110

Clothing, shoes & accessories Q100 Q111

Furniture & homeware Q101 Q112

Hardware goods Q102 Q113

Personal care (e.g., hair & beauty salon, pharmacy)

Q103 Q114

Cleaning services (e,g, laundromat) Q104 Q115

Restaurants & take-aways Q105 Q116

Leisure & entertainment Q106 Q117

Speciality goods (e.g. music, baby, sport, stationery)

Q107 Q118

Other (Please specify)_______________________

Q108

Q119

27. Any other ideas you might have for a new petrol station complex in Stutterheim? Q130

SECTION F: INCOME 28. What is your current total MONTHY household income [before tax and benefits are deducted]? Q121 R0 – R1,500 1 R10,001 – R15,000 6 R35,001 – 40,000 11 R1,501 – R2,500 2 R15,001 – R20,000 7 >R40,000 12 R2,501 - R5,000 3 R20,001 – R25,000 8 R5,001 – R7,500 4 R25,001 - R30,000 9 R7,501 – R10,000 5 R30,001 – R35,000 10

Thank you for your participation!

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AMAHLATHI PETRO PARK TRANSIENT MARKET SURVEY

FIELDWORKERS NAME: _______________________ TEL NO: _____________________ TIME TAKEN TO COMPLETE SURVEY: _________________________ LOCATION OF SURVEY CONDUCTED: _____________________(TOWN AND/OR PETROL STATION) INTRODUCTION Urban-Econ Eastern Cape has been appointed by ASPIRE to undertake a Market Research and Feasibility Study for the establishment of a service complex including a filling station, retail facilities, tourism and arts and craft centre and related amenities in Stutterheim. Please assist us in answering the following questions. All your responses will be kept confidential, your time is appreciated! SCREENING QUESTION i. Do you intend to travel, or have you already travelled through Stutterheim on this journey? SECTION A: BACKGROUND INFORMATION 1. Name: __________________________________________________ (Q1) 3. Contact number: __________________________________________________ (Q2) 3. Hometown: __________________________________________________ (Q3) 4. Point of departure of journey _________________________________________ (Q4) 5. Final destination of journey __________________________________________ (Q5) 6. Frequency of respective journey_______________________________________ (Q6)

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7. Form of Transport: (Please select one option only) Vehicle Tick

Motorcycle/Scooter Q7 Car/Bakkie (Petrol) Q8 Car/Bakkie (Diesel) Q9 Truck (larger than 1 ton bakkie) Q10 Taxi Q11 Bus Q12

8. How many people are you travelling with today?_________________________(Q13) SECTION B: FUEL PROFILE 9. How regularly do you stop at this Petrol Station Complex? (Please tick where appropriate)

Regularity of Stops Tick First Time Q14 Once or Twice Per Year Q15 Less than Once Per Month Q16 Once Per Month Q17 2 or 3 times Per Month Q18 Once Per Week Q19 2 or 3 Times Per Week Q20 5 or More Times Per Week Q21

10. How much do you usually spend on the following, when you visit this Petrol Station Complex? Facility Amount (Rand) Fast Food Outlet R Q22 Convenience Store R Q23 Gifts/Tourism products R Q24 Petrol/Diesel R Q25 Other_________________________ R Q26 Total R Q27

11. How often do you stop in Stutterheim when you travel through Stutterheim? (Please tick only one)

Regularity of Stops Tick Always Q28 Most of the time Q29 Sometimes Q30 Almost never Q31 Never Q32

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12. Please explain the reason why you do/do not stop in Stutterheim? Q33 13. Which of the following do you most often utilise when you stop in Stutterheim? (Can tick more than one) Facility Tick Fast Food Outlet/Restaurant Q34 Shopping Q35 Banking Facilities Q36 Petrol/Diesel Q37 Other_________________________ Q38

SECTION C: FUEL AND RETAIL PREFERENCES 14. If a new Petrol Station Complex were to open in Stutterheim, would you utilise this complex? (Petrol Station plus other facilities such as ATMs, convenience shop, restaurant, etc.) Q39 YES / NO Q40 Yes 1 No 2 15. Why/Why Not? Q41 16 Which of the following facilities would you utilise at a new Petrol Station Complex in Stutterheim? Facility Yes Maybe No Sit Down Restaurant 1 2 3 Q42 Fast Food Outlet 1 2 3 Q43 24hour Convenience Store 1 2 3 Q44 Car Wash 1 2 3 Q45 Auto Repair Workshop (incl. tyres/shocks etc)

1 2 3 Q46

Art and Craft Shop 1 2 3 Q47 Home Industry (Local Produce) Shop 1 2 3 Q48 Tourism Office 1 2 3 Q49 ATM Banking 1 2 3 Q50 Gift Shop 1 2 3 Q51 Post Office 1 2 3 Q52 Other__________________________ 1 2 3 Q53 Other__________________________ 1 2 3 Q54

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17 . If a new petrol station were to open in Stutterheim what fuel company brand would you prefer to see introduced? Please indicate from the following list your top three desirable brands. Where 1 is most desirable and 3 is the least desirable. Fuel Company Type Top 3 Ratings

Shell Q55 BP Q56 Caltex Q57 Engen Q58 Zennex Q59 Sasol Q60 Excel Q61 Other__________________________ Q62 Other__________________________ Q63 18. What type of Fast Food Outlet/Sit Down Restaurant would you prefer to see introduced at a new Petro Park? Please indicate from the following list your top three desirable brands. Where 1 is most desirable and 3 is the least desirable. Fast Food Outlet Top 3 Ratings

Steers Q64 Wimpy Q65 Wild Bean Cafe Q66 KFC Q67 Chicken Liken Q68 Hungry Lion Q69 Whistle Stop Q70 Other__________________________ Q71 Other__________________________ Q72 19. Would you stop in Stutterheim at a new retail complex if it did not contain a petrol station? YES / NO Q73 Yes 1 No 2 20. Why/Why Not? Q74 21. Which services/products would make you stop at a new retail complex in Stutterheim that did not have a petrol station? Q75

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22. Any other ideas you might have for a new Petro Park complex in Stutterheim? Q76

SECTION D: INCOME 23. What is your current total MONTHY household income [before tax and benefits are deducted]? Q77 R0 – R1,500 1 R10,001 – R15,000 6 R35,001 – 40,000 11 R1,501 – R2,500 2 R15,001 – R20,000 7 >R40,000 12 R2,501 - R5,000 3 R20,001 – R25,000 8 R5,001 – R7,500 4 R25,001 - R30,000 9 R7,501 – R10,000 5 R30,001 – R35,000 10

Thank you for your participation!

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AAnnnneexxuurree 33:: UUnnddeerrssttaannddiinngg EEccoonnoommiicc IImmppaacctt MMooddeelllliinngg 3.1 Introduction Economic impacts are caused by the interaction between the various sectors of the economy and these impacts are measured for a specific geographical area. Economic impacts may be viewed in terms of (1) business output or sales volume, (2) value added or gross regional product (GGP), (3) Government Revenue Impact, (4), or (5) jobs. Any of these measures can be an indication of improvement in the economic well being of the local communities, which is usually the main goal of economic development efforts. Economic impacts also lead to fiscal impacts, which are changes in government revenues and expenditures. Economic impacts on total business sales, wealth or personal income can affect government revenues by expanding or contracting the tax base. This chapter will proceed according to the following sections:

• Understanding the Input/Output model • Defining economic impact • Types of economic Impacts • Measuring economic Impacts

3.2 Understanding the Input-Output Model While there are many methods of regional economic impact analysis, the I/O modelling approach has proven to be a particularly effective method for evaluating the implications of introducing an exogenous change to the economy. The Input-Output Table forms the nucleus of the I/O model. Essentially the Input-Output Table is nothing more than an extension of the National Accounts of a country, i.e. desegregating it into the various sectors of the economy. Therefore, the Input-Output Table is a quantified and summarised version of all transactions that took place between the main economic stakeholders in a particular year. For this reason, Input-Output Tables are compiled and published by Statistics South Africa (SSA), using primarily South African Reserve Bank Accounts data. These sectoral figures are therefore strictly compatible with the macro national accounting data published by the South African Reserve Bank and STATS SA on a regular basis. The Input-Output Table makes provision for two kinds of transactions at a sectoral level, namely the purchase of intermediate and primary inputs on the one side, and the supply of intermediate and final outputs on the other side. In order to arrive at proper multipliers for the different sectors, household income expenditure has been included in the inter-industry section of the Input-Output

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Table. This implies that household income is treated as being spent within the economic system and is generating further economic activity. It is also important to note that the main economic decision-makers who are responsible for the transaction activities contained in the Input-Output Table are entrepreneurs, workers, households and government (all three levels). Importantly, it is the matrices that can be derived from the I/O model that are used as instruments for economic analysis. This is done by means of the so-called technical input coefficient matrix and the Leontief Inverse matrix. The fundamental assumptions with regard to the I/O model, as well as the use of this model for analytical purposes, are: • Production activities in the economy are grouped in homogeneous sectors. • The mutual interdependence of sectors is expressed in meaningful input

functions. • Each sector’s inputs are only a function of the specific sector’s production. • The production by different sectors is equal to the sum of the separate

sectors’ of production. • The technical coefficients remain constant for the period over which forecast

the projections are made. • There will be no major change in technology. It should also be noted that: • All the Rand values in this report represent 2008 current prices. • The different measures of economic impact (jobs, GDP and new business

sales) cannot be added together and should be interpreted as separate economic impacts.

• The model quantifies direct and indirect economic impacts for a specific amount of time (e.g. 5 years). Therefore, the estimates that are derived do not refer to gradual impacts over time.

3.3 Defining Economic Impacts Economic impacts can be defined as the effects (positive or negative) on the level of economic activity in a given area(s). The net economic impact is usually measured as the expansion or contraction of an area’s economy, resulting from the changes in (i.e. opening, closing, expansion or contraction of) a facility, project or program. Importantly, the net economic impact is ultimately informed by the exogenous change to a particularly defined geographical area/entity. 3.4 Types of Economic Impacts The net economic impact of an exogenous change in the economy will be translated according to various direct and indirect economic effects, as are defined below:

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• Direct economic impacts: are the changes in local business activity occurring as a direct consequence of public or private business decision, or public programmes and policies. Furthermore, increased user benefits lead to monetary benefits for some users and non-users (individuals and businesses) within the geographical area:

For affected businesses, there may be economic efficiency benefits in terms of product cost, product quality or product availability, stemming from changes in labour market access, cost of obtaining production inputs and/or cost of supplying finished products to customers. For affected residents, benefits may include reduced costs for obtaining goods and services, increased income from selling goods and services to outsiders, and/or increased variety of work and recreational opportunities associated with greater location accessibility.

• Indirect and induced impacts: Ultimately, the direct benefits to business and

the residents of communities and regions may also have broader impacts, including:

• Indirect business impacts – business growth for suppliers to the directly-

affected businesses. Induced business impacts – business growth as the additional workers (created by direct and indirect economic impacts/effects) spend their income on food, clothing, shelter and other local goods and services. This business growth will also have implications for potential municipal income due to raised taxes and service levies.

• Dynamic economic effects – shifts in broader population and business

location patterns, land use and resulting land value patterns, which may also affect government costs and revenues. These changes will ultimately affect income, wealth and/or well-being.

3.5 Measuring Economic Impacts The direct and indirect economic impacts listed are measured according to the following broad economic variable categories: New business sales: refers to the value of all inter- and intra-sectoral business sales generated in the economy as a consequence of the introduction of an exogenous change in the economy. Explained more simply, new business sales equates to additional business turnover as a result of the introduction of an exogenous change in the economy. Total employment generation: reflects the number of additional jobs created by the economic growth that result from an exogenous change in the economy. A job is defined as one person employed for one year. This is the most popular measure of economic impact because it is easier to comprehend than large, abstract Rand figures. However, job counts have two major limitations: (1) they do not necessary reflect the quality of employment opportunities, and (2) they

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cannot be easily compared to the public costs of attracting those jobs (through subsidies, tax breaks or public investments). New salaries and wages: measures the increase in existing salaries and wages as a result of the exogenous change in the economy. Change in Gross Domestic Product: is a broader measure of the full income effect. This measure essentially reflects the sum of wage income and corporate profit generated in the study area as a result of an exogenous change in the economy. Increased tax revenue: The direct and indirect economic impacts will lead to fiscal impacts, which are changes in government revenues and expenditures. For example, economic impacts on total business sales, wealth or personal income can affect government revenues by expanding or contracting the tax base.