8 things stressing out businesses in South Africa right now
Businesses are stressing about load shedding and growing economic uncertainty in South Africa, a SNG Grant Thornton survey shows, with many being forced to close their doors due to the rising cost of energy.
The survey polled approximately 100 business leaders in South Africa – including chief executive officers, managing directors, chairpersons, and other senior decision-makers from various industries.
Businesses listed the high frequency of load shedding – and the subsequent rising operation costs – as the biggest issue they face.
74% of South African mid-market businesses surveyed see energy costs as a major issue due to loadshedding and the high cost of diesel, compared to 47% of those surveyed pre-Covid 19 pandemic
The report further noted that economic uncertainty across the board increased significantly – up 11% from the first half of 2022, with 67% of respondents noting this was another key concern in the country.
Labour costs ranked as the third biggest concern (57%), followed by the deteriorating quality of transport infrastructure (54%).
“Load shedding and the rise in energy costs have forced many businesses to close operations, thereby affecting sales and causing supply chain disruptions. This further impacted on the already high unemployment rate and financial constraints,” said Yugen Pillay, director of business consulting at SNG Grant Thornton.
The report noted that load shedding was disruptive for businesses resulting in excessive downtime when businesses sought alternatives such as backup generators, uninterrupted power supply (UPS) and solar power solutions.
Pillay said that companies are trying alternative energy sources, but this has all come at an extra cost – especially generators, which use diesel, a commodity that has gotten significantly expensive due to rising international oil prices pushed by geo-political concerns.
The severe knock-on effects of load shedding can be seen among some of the biggest companies in the country: retail group Pick n Pay reported that it costs R60 million a month to keep diesel generators running and lights on in stores across the country.
The retailer said that load shedding has now become a permanent reality that businesses need to adapt to or lose money.
Shoprite, meanwhile, reported that its diesel bill was averaging around R3 million a day to keep the lights on.
SNG Grant Thornton anticipates an improvement in the outlook over the next 12 months, particularly in terms of investment and economic conditions. However, the risks to the economy are to the downside.
The South African Reserve Bank (SARB), on 26 January, revised its economic growth forecast closer to zero from 1.1% to 0.3% after Eskom announced that load shedding would be a permanent feature of the country.
The central bank has also significantly lowered its expectations for South Africa’s economic growth over the next two years. The growth rate forecast for 2024 has been reduced by half, from 1.4% to 0.7%, and for 2025, it has been lowered from 1.5% to 1.0%.
The message across sectors is clear – South Africa urgently needs to deal with load shedding and the wider energy crisis if it hopes to achieve economic growth.
Attempting to address this, during the State of the Nation Address last week (9 February), President Cyril Ramaphosa declared a state of disaster over the energy crisis, in a bid to further cut red tape and fast-track projects to resolve the energy crisis.
This decision has however, faced major backlash from the public over concern that it would open up the country for more “tenderpreneurship”, as seen during the pandemic. At least three different court processes have been launched to challenge the move.
The president also announced that he would be appointing a ‘minister of energy’ within the presidency whose sole responsibility will be dealing with load shedding and the energy crisis.
This, too, has been met with opposition.
Businesses have expressed frustration at the the president’s plans and lack of action – while ratings agencies have taken note, casting doubts on whether the national government will be able to overcome its track record and actually implement the promised measures.
Loading ...
