It’s adapt or die for businesses in South Africa

 ·12 Jul 2023

South Africa’s economy has been drained by load shedding; however, businesses remain resilient. This is more out of necessity than desire, however, and has seen companies sinking millions of rands into alternative power supplies.

In its latest Guide to the Economy Report, finance group Nedbank said that the country just managed to escape a technical recession in the first quarter of 2023, with GDP growing by 0.4% compared to the prior quarter, following a 1.1% decline in the final quarter of 2022.

The bank said that most of the significant positive contributions came from the production side, specifically the manufacturing industries, domestic trade, transport, communications and finance, real estate, and business services.

“Much of the improvements reflect some normalisation of the previous quarter’s low base rather than any significant upward traction.”

“Even so, the rebounds in the power-intensive manufacturing and mining sectors, despite severe load-shedding, suggest that these industries are adapting to the challenging trading conditions by securing alternative energy sources,” Nedbank said.

The bank added that finance, real estate, and business services, the economy’s largest sector, contributing 20.9% to GDP, also recovered off the previous quarter’s low base.

“A similar story unfolded in domestic trade and transport and communications, all supported by firmer consumer spending and the ongoing recovery in international tourism,” said Nedbank.

It said that similar to manufacturing and mining sectors, businesses in other sectors are also turning to generators to mitigate the impact of load shedding, managing to operate at higher levels than would otherwise have been the case.

On the opposite side of having stable business as a result of alternative energy sources, the use of more expensive electricity sources pushed operating costs sharply higher, eroding profit margins significantly.

Nedbank said that an unsurprising result of this is that contractions were experienced in electricity, gas, and water, with value-added falling for the fourth consecutive quarter as Eskom’s power generation capacity remained constrained.

One of the biggest drags to business came from agriculture, which contracted by 12.3% after having shrunk by 2.4% in the final quarter of 2022.

According to Nedbank, farmers were hard hit by load-shedding, which inflated both electricity and water costs. At the same time, field crops were damaged by excessive rains in some regions, and meat producers continued to grapple with foot and mouth disease.

In May, the CEO of Agri SA, Christo Van der Rheede, said that load shedding was setting back the agricultural industry billions as diesel for generators was relied upon heavily.

Over the nine months between January and September 2022 – when load shedding more than doubled compared to 2021 – the agricultural sector lost more than R23 billion, reported the CEO.

This can be expected to only increase as load shedding in 2023 has already surpassed that of 2022.

Furthermore, load shedding has hurt the country’s major retailers with Pick’ n Pay as well as Shoprite’s spending millions to keep the lights on. Load shedding costs assessed by BusinessTech showed that all the major retailers combined had spent R2.4 billion to stave off blackouts.

Nedbank’s latest report comes as Eskom returns to stage 6 load shedding following an extended period of lower stages as a result of cooler weather and less demand.

The power utility said the increase in the severity and frequency of blackouts was needed due to an additional loss of generating units overnight, the extensive use of open cycle gas turbines the inability to restore pumped storage fam levels.

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