Founder: Turnaround Talk
One of the bold statements made at the birth of the Fourth Industrial Revolution was that Big Data will play a significant role in the future of corporate decision making. Nowhere is this more evident than when it comes to quantifying the economic impact of loadshedding.
The pain that some companies is very real. From certain businesspeople learning ancient woodworking techniques to ensure business continuity to businesses facing the tough decision of closing down altogether, the impact of loadshedding on small businesses has been significant. Larger companies such as Pick n Pay and Checkers are spending millions to run generators on a monthly basis to make sure that they can keep their doors open. These costs will ultimately filter down to consumers.
New data now shows more signs of suffering.
Crushing commercial property
The BusinessTech article points out that recent data from the South African Property Owners Association (SAPOA) shows that load shedding is crushing the commercial property industry.
The latest SAPOA survey polled various property industries – namely, the commercial office, industrial, shopping centres, hotels and residential – on how their businesses had been affected load shedding and what changes they have been forced to make.
Organisations questioned ranged from smaller groups, between 1 to 100 employees, to larger companies that employed upwards of 500.
The article adds that, out of those queried by SAPOA, only 1.69% of all respondents said that load shedding has to date, had no impact on business. Over 70% of respondents reported a serious or very serious impact on their business.
Load shedding has taken place every day this year with no sign of reprieve in the near term. Rolling blackouts have crippled the economy, pushed the country into a likely recession, halted business operations and shattered foreign investor interest.
Graph By: SAPOA
A cost mountain
The BusinessTech article points out that one of the most tangible effects of load shedding to everyday business owners is the extra amount they are paying each month to maintain standard operational levels – whether it be installing solar, UPSes or fueling large-scale diesel generators.
Small and large companies are forking out millions of rands every month to keep the lights on.
The article adds that the majority of respondents to the survey said that direct costs associated with running a business during load shedding – whether it be fuel for generators, among other things – spend over R100,000 a month. 8.93% of all respondents spend above R10 million a month.
On top of direct costs, businesses often face overlooked factors such as lost labour productivity, resultant damage to machinery and more – these can be considered some indirect costs to load shedding.
The BusinessTech article points out that, in this case, more than half of all respondents spend between R100,000 and R500,000 a month to mitigate these adverse effects.
Most businesses polled by SAPOA rely on diesel generators (83%) to mitigate load shedding.
To keep these diesel generators going, however, businesses are largely paying the going market prices for fuel, escalating costs significantly. Very few get special pricing or pay wholesale prices, the report showed.
The article adds that, turning to solar, less than half (49%) the businesses have some sort of solar backup. It’s clear from the response that more businesses are turning to solar, with 75% and 85% indicating they have applied to Eskom and their local municipality, respectively, for solar approval.
However, the process is being hampered by long wait times as approvals take months to be granted. Some companies indicated waiting over 12 months for their applications to be processed.
It’s in developing load shedding mitigation that businesses are incurring the biggest costs. The investment into generators and solar ranges from the low-end of R400,000 to over R500 million, the report showed. Most companies said their backup solutions have cost them tens of millions of rands.
For the companies that are generating their own power, it still only covers a small part of their business, with most companies indicating that self-generation covers around 30% of their operations.
Wider economic impact
The BusinessTech article points out that, for businesses dealing specifically with processes of manufacturing, business owner confidence in the sector has been hit hard by power outages. According to the Bureau for Economic Research (BER), the pervasive power outages coupled with deteriorating household income knocked manufacturing hard in the final quarter of 2022.
SOPOA respondents reported that there was also a significant decrease in the number of operational assets during load shedding. 50% of all respondents said that only 80% of their assets functioned during power outages, followed by 35% that said half of their equipment was still reliable.
When asked if they were currently generating their own electricity through solar, wind, gas or other processes – 44% said they w,ere whereas the other 55% are yet to.
The article adds that the initial costs of pursuing private generation were seen as the biggest inhibiting factor (76%), followed by technical limitations and a lack of local authority support and approvals.
During his latest national budget speech, finance minister Enoch Godongwana announced two tax measures to promote investments in renewable energy and boost electricity generation in South Africa, in line with President Cyril Ramaphosa’s latest State of The Nation Address (SONA).
Graph By: Sapoa
Starting from 1st March 2023, businesses can deduct 125% of the cost of their investment in renewables from their taxable income.
Although the government has put in place a handful of initiatives to better the energy crisis, over 90% of the SOPOA respondents belive that the load-shedding situation will only worsen in the future – as it has traditionally over the last few years.
Another nail in the traditional retail model?
At the height of the Covid Pandemic, where consumers were not allowed to descend on shopping centres, many industry analysts questioned if we were starting to see the beginning of the end of the traditional retail model.
Most certainly, over time, companies have come to terms with the fact that they can no longer ignore the value of online retail platforms. Many have taken the time and effort to build hybrid models whereby consumers can shop online and in store.
Is this another sign of change? Yes there is value in having a physical brick-and-mortar store, but how long will it take for these dinosaurs to be distribution centres dedicated for pickup point? South Africa is showing signs of rapid technological adoption and the online shopping movement is gaining significant momentum. Even in markets that will be significant different to developed countries, the age of large shopping centres is facing extinction.
