SMEs stagger under Eskom blow

As stage 6 load-shedding brought the economy to its knees this week, small and medium enterprises (SMEs) that cannot afford alternative power sources bore the brunt of the near total collapse of Eskom generating capacity.  

Eskom rolled out stage 6 power cuts for the first time since 2019, citing the need to take precautionary measures to conserve generation capacity and safeguard its plants from damage due to an unprotected strike.

Experts expect  a blow to second-quarter growth figures due to the blackouts. 

Kganki Matabane, CEO of the Black Business Council (BCC), said load-shedding undermined the National Development Plan’s 2030 target of creating  11-million jobs — 90% of them thanks to SMEs. 

“Unfortunately SMEs can't afford generators and they can't create jobs. Stage 6 means SMEs lose 10 hours in a 24-hour day due to load-shedding and can't operate effectively,” Matabane said. 

Small Business Institute CEO John Dludlu said anecdotal evidence suggested that SMEs were choosing to close down during power cuts. Those that had new expansion plans were putting these on hold until there was more certainty.

“Others tell us they are holding back on expansion plans, which means that possible new jobs will not be created,” he said.

Dludlu said the intensified levels of load-shedding added to other long-standing problems for SMEs,  such as the rising cost of capital; late payments by clients, especially the government; crippling red tape; and dysfunctional municipalities. He also cited the widespread, general collapse of public services,  the floods in KwaZulu-Natal and the looting and anarchy in July last year as disruptions that had taken a heavy toll on SMMEs.

Eskom CEO André de Ruyter said on Friday that despite the call for a return to work issued by Eskom management and leaders of the National Union of Mineworkers and the National Union of Metalworkers of SA, 2,709MW  of capacity was still down due to the unlawful strike. 

“The key issue is the return to work to allow us to lift load-shedding. We have three stages of load-shedding attributable to the industrial action. That is a major factor putting us in the situation we are in right now.”

Dludlu said the picture was likely to be uneven from province to province, with  the City of Cape Town managing to mitigate  load-shedding by operating its Steenbras hydro-electric plant at full capacity during stage 6.

Inevitably, small-business owners who have no luxury of litigating their way out of a myriad of problems or getting out of the national grid immediately through schemes such as embedded generation are likely to bear the worst brunt of the deteriorating business environment

—  Small Business Institute CEO John Dludlu

Dludlu predicts increased business closures and liquidations for smaller business that can’t find a way out of reliance on Eskom.

“Inevitably, small-business owners who have no luxury of litigating their way out of a myriad of problems or getting out of the national grid immediately through schemes such as embedded generation are likely to bear the worst brunt of the deteriorating business environment. Liquidations and business closure data will tell the first part of this story in the form of job losses and income destruction,” he said.

Fanele Mondi, CEO of the Energy Intensive Users Group, said while industrial action at Eskom had made things worse,  the utility’s woeful generation performance and the limited  addition of new generation capacity remained the core issues. 

Mondi cited an Eskom energy study in December 2020 that estimated load-shedding cost the economy nearly R35bn  between 2007 and 2019. This, the study said, was “roughly equivalent to the impact the 2008/2009 financial crisis had on GDP growth”. 

Philippa Rodseth, executive director at the Manufacturing Circle, said unreliable, inadequate  electricity supply crippled manufacturers by impairing their competitiveness; power cuts led to lost production time and created problems for  continuous production processes such as metals and plastics extrusion. 

“The situation is compounded by many municipalities that are not able to supply reliable electricity to factories due to various issues, which include old and inadequately maintained infrastructure, looting, and vandalism of substations due to inadequate security, as well as the absence of technical, financial and managerial capability required to perform what should be a basic local-government function,” Rodseth said.

Business Unity SA (Busa) CEO Cas Coovadia said stage 6 load-shedding was a serious blow to an economy “that is already struggling with low growth and a lack of decisive action on the part of the government to make the necessary interventions to attract investment and put the country on a sustainable and inclusive growth path”.

“[It] will be a serious blow to all sectors of the economy and could lead to SMEs buckling under the pressure of managing an untenable situation.”

Coovadia said Busa was not surprised that SA had reached this crisis.  “We have been urging the government for numerous years to remove all barriers to private sector intervention in the generation of energy and power, but it is only recently that the government has heeded these considerations.”

Nellis Bester, chair of the Ferro Alloys Producers Association,  said stage 6 was a double blow as recent floods in parts of KwaZulu-Natal had caused  prolonged disruption to exports by association members and the backlog remained huge.

But, he said: “Fuel price escalations are probably hurting us more today than load-shedding due to our reliance on transport for raw materials and finished products.”

He called for quicker implementation of the independent power producer programme. 

Minerals Council SA’s chief economist, Henk Langenhoven, said the mining industry was in the process of implementing renewable energy projects that will assist Eskom to stabilise  the grid. He said members of the Minerals Council — mainly smelters — participated in Eskom’s demand response programme, in terms of which they reduced their energy demand at short notice to ease tension on the grid.

Langenhoven said at times of great need, smelters could assist by adjusting their maintenance schedule to lessen consumption and allow Eskom to recover.

But such interventions often come at the cost of production. “Load curtailment at a mine will sometimes mean that employees will not go underground as many mines are not able to operate after reducing their load by 20%, thus forfeiting the day’s production for day and night shift.”