The knock-on effect of the economy on HVAC

The knock-on effect of the economy on HVAC

By Neil Cameron of Johnson Controls

South Africa’s economy is performing poorly, and businesses are cautious — how is this impacting the HVAC industry?

Spend is conservative and short-term investments are the choice of risk-averse organisations. This is impacting decisions around the HVAC equipment, both in new construction and in terms of maintaining and refreshing HVAC technologies. This is a very short-sighted approach.

It is not only political uncertainty that has had an impact. The economy is not growing. The World Bank GDP growth estimates for sub-Saharan Africa puts South Africa’s expected growth at just 1.1% in 2018 — a third of the region’s average — and only marginally better than the country’s 2017 average of 0.8%. People and companies are struggling and that, in turn, changes buying priorities.

Facility owners and managers are sweating their assets more — making do with older, less efficient systems. Lessees are taking shorter, two- to three-year leases to decrease risks themselves — because they may need to downsize at some point. This means developers are not investing in significantly energy-efficient HVAC systems — they are acquiring systems that can ‘do the job’; yet, do not deliver major efficiencies.

Now is the time

Some customers are taking a longer-term approach, however. They are looking to minimise operational costs to ensure their survival in a tougher economic environment. In terms of HVAC, this requires a careful look at capital and lifetime costs of the equipment.

New HVAC equipment typically provides a 25% energy-efficiency gain over older equipment. However, the lifetime cost of an HVAC system also needs to be factored in. Operational costs weigh in at 40 times more than the initial capital investment in the equipment. The efficiency of the HVAC systems is therefore a critical consideration.

The challenge for South African companies is to make smarter decisions that will take them through tough conditions, and free up capital to invest in growth initiatives.

Organisations that are investing now, are using a number of models to make the business case and finance the capital amount. Some are managing to finance investments in HVAC based on just the energy savings.

For building owners, acquiring and installing efficient HVAC equipment enable cost savings to immediately be passed on to tenants. Instead of offering lower initial rentals, the case can be made for lower ongoing energy costs — something South African lessees can appreciate given the high cost of utilities.

Invest in growth

As we enter a new year, there is much to look forward to. The challenge for South African companies is to make smarter decisions that will take them through tough conditions, and free up capital to invest in growth initiatives.


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