The economic impact of Loadshedding: an early 2023 view

Since the beginning of 2022, South Africans have been forced to deal with loadshedding as an event that will be a daily occurrence for the foreseeable future. Unfortunately, the practice has become as common in our everyday lives as Egoli, Isidingo and 7de Laan without any of the popularity associated with these South African classics.

Make no mistake, loadshedding is a scourge on the country and may be the hill that the ANC loses significant ground on come 2024. However, we have to deal with the challenge that is presented to us now.

President Cyril Ramaphosa is seemingly making the right moves and is becoming serious about resolving the situation. But what are the true costs of not addressing loadshedding as a matter of urgency?

Growing concern

Let’s start with a frightening statistic. If we take all of the hours that South African experienced last year, the country lost over 100 days to loadshedding. This year looks primed to break that record as we are currently more than 100 days into continuous loadshedding (if we count from the end of 2022) with no real end in sight.

So, what does this mean? In July 2022, Turnaround Talk published an article which pointed out that South Africa loses R500 million a day to loadshedding. According to the South African Reserve Bank (SARB), this number has increased to R900 million/day when the country faces Stage 6 power cuts.

SARB points out that rolling blackouts of about 6 to 12 hours a day, or so-called Stage 3 and Stage 6 outages, detract between R204 million and R899 million from the economy.

Wow.

That’s on a macro level. What is happening on a linear level? Turnaround Talk published an article which pointed to the measures that retailers are taking to avoid loadshedding and the massive cost that this evasive action has on their businesses. Anthony Thurnström, CEO of The Foschini Group (TFG), said that their loss of income during a two-week period of Stages 5 and 6 load shedding in September was estimated to be R400-million.

The SARB predicts that electricity will be rationed for 250 days in 2023, which, if realized, will be a record.

Massive costs

An article by Daily Investor points out that Pick n Pay and Shoprite revealed that they spend tens of millions per month to keep the lights on during load-shedding.

Pick n Pay said in its 2022 annual report that load-shedding – including the cost of running and maintaining diesel generators – significantly increased its operating costs. Pick n Pay added that it spent an additional R346 million year-on-year on diesel to run generators at stores in the first ten months of 2022.

The Daily Investor article points out that the costs were concentrated over the latter months and are currently on a run rate of approximately R60 million per month, depending on the stage of load shedding experienced.

Pick n Pay is also experiencing increased generator repairs and maintenance costs and some additional food waste costs.

The Daily Investor article points out that Shoprite said it spent R560 million more on diesel to operate generators across its South African stores to trade uninterrupted during load-shedding stages five and six in the last six months. What it means is that Shoprite spends an additional R93 million on diesel each month to trade during power outages.

These are the direct challenges. The indirect challenges of loadshedding is that consumer demand has dropped as consumers have forced themselves to make 2 liters of milk last four or five days as opposed to three. There is also interruption in food production and food delivery creating a supply chain crisis within the Global Supply Chain Crisis which the country has already been dealing with since 2020.

The Daily Investor article points out that these costs will ultimately filter down to consumers.

More pain for small business

At least Pick n Pay and Shoprite have the luxury of being able to afford to implement these countermeasures. What happens to small businesses?

News24 recently published an article which discussed some of the measures that small businesses are taking to avoid the impact of loadshedding. One business has to rely on ancient woodworking techniques to keep their furniture business running. Another small business owner has a lodge in Mpumalanga which used to be popular with locals and tourists from Eswatini, but is now a ghost town because there is no power to run the air conditioning in the rooms.

A recent article by News24 points out that in the five years since Corner Cafe opened its doors a few metres away from the South African Parliament building in Cape Town’s central business district, it has become a popular meeting place for politicians, researchers and other locals.

But less than two years after the Covid-19 pandemic flattened business in the area and led to many closing shops, Prisca Horonga, the cafe’s owner, who works up to 12 hours and employs three people, says it is facing another existential crisis.

Since 2022, there have been scheduled blackouts, or load shedding, across the country for as long as 10 hours per day at a time.

“You have to wait until the power returns … we cannot afford a generator, so we lose clients all the time,” 32-year-old Horonga, originally from Zimbabwe, told Al Jazeera.

The News24 article adds that, in the same district, beautician Nadine Iqani, who has been in operation for the past 15 years, has similar worries. In the past decade, she has managed to juggle her schedule to accommodate clients despite the blackouts, but she says things have worsened in the last year.

“I am making a third of the income pre-the load shedding times, and I have clients shouting at me,” she told Al Jazeera. “It is just a nightmare … working long hours, including weekends, to accommodate clients.”

Now, Iqani is considering saving for an inverter battery system.

Many small business owners like her and Horonga say they are close to buckling under the pressure of the crippling power cuts.

The article points out that some small businesses are already warning that there will be job losses as the power cuts continue, and that could have a ripple effect in Africa’s most industrialised economy. South African small businesses, often seen as the lifeblood of the economy, account for a third of the country’s gross domestic product (GDP).

Hopefully these statistics are weighing heavily on the Presidents mind as he plots a response to the crisis.