Reference: Published by Staff Writer, 17 February 2023

8 things stressing out businesses in South Africa right now

Companies are fretting about load shedding and mounting economic instability in South Africa, an SNG Grant Thornton study finds, with many being forced to close their doors due to the rising cost of energy.

Almost 100 corporate leaders in South Africa, including CEOs, managing directors, chairpersons, and other top decision-makers from diverse industries, participated in the study.

Companies identified the excessive frequency of load shedding and the ensuing increase in operating expenses as their top concern.

Due to load shedding and the high cost of diesel, energy costs are a major concern for 74% of South African mid-market enterprises, compared to 47% of respondents before the COVID 19 outbreak.

According to 67% of respondents, this is another major worry for the nation. The research also indicated that overall economic uncertainty increased dramatically over the first half of 2022, rising 11%.

After the worsening state of the transportation infrastructure (54%), labor expenses were identified as the third major worry (57%).

Load shedding and rising energy prices have pushed many enterprises to shut down, which has a negative impact on sales and disrupts the supply chain. According to Yugen Pillay, director of business consulting at SNG Grant Thornton, this had an even greater impact on the already high unemployment rate and budgetary restrictions.

The study found that load shedding caused unnecessary downtime for enterprises as they looked for alternatives such backup generators, uninterrupted power supplies (UPS), and solar power options.

According to Pillay, businesses are experimenting with alternative energy sources, but doing so has come at an additional cost. This is particularly true for generators, which use diesel, a commodity whose price has significantly increased as a result of the global oil market’s upward trend, which is being driven by geopolitical concerns.

Some of the largest enterprises in the nation are suffering from the severe consequences of load shedding; retail chain Pick n Pay estimated that it costs R60 million per month to keep diesel generators running and the lights on in its outlets nationwide.

According to the merchant, load shedding is now a constant reality that businesses must adapt to or risk losing money.

The cost of Shoprite’s diesel to keep the lights on, meanwhile, was estimated to be over R3 million per day.

During the next 12 months, SNG Grant Thornton expects the outlook to improve, particularly in terms of investment and economic conditions. The dangers to the economy are, nonetheless, negative.

Following Eskom’s announcement that load shedding would become a permanent feature of the nation, the South African Reserve Bank (SARB) reduced its economic growth projection closer to zero on January 26 from 1.1% to 0.3%.

The expectation of South Africa’s economic growth for the following two years has also been drastically reduced by the central bank. Forecasted growth rates have been cut in half for 2024 and 2025, from 1.4% to 0.7% and 1.5% to 1.0% respectively.

The message is consistent across industries: if South Africa wants to see economic growth, it must immediately address load shedding and the broader energy crisis.

In an effort to address this, President Cyril Ramaphosa proclaimed a state of calamity over the energy crisis during last week’s State of the Nation Address (9 February) in an effort to further reduce red tape and expedite projects to address the energy crisis.

However, the public has strongly opposed this choice due to worries that it will encourage more “tenderpreneurship,” as was evident during the pandemic. The action is being contested in at least three different legal cases.

Additionally, the president declared that he would name a “minister of energy” to the presidency whose primary duty would be to address load shedding and the energy problem.

This has also encountered opposition.

Companies have voiced their dissatisfaction with the president’s promises and lack of action, and ratings agencies have taken notice, raising questions about whether the national government will be able to change its history and truly carry out the promised reforms.