POWER CRISIS
Failing State? Corporate SA counts the cost of impact of worsening rolling blackouts
Based on financial statements that some of the largest JSE-listed companies have published in recent weeks, the impact of rolling blackouts on South Africa’s economy was at least R15bn in 2022. But this is a highly conservative estimate.
South Africa’s corporate giants had a rough few days as they started to detail the negative impact of rolling blackouts, the country’s weak economy and President Cyril Ramaphosa’s ineffective Cabinet on their operations, which sparked a costly share bloodbath on the JSE.
About R1-trillion was wiped off the value of shares on the JSE in seven days, with the FTSE/JSE Africa All Share Index falling by as much as 3.2%.
Globally, investors are worried about the stability of the banking system after three commercial banks collapsed in the US, sparking fears of a repeat of the 2008 global financial crisis. But locally, investors are worried about the warnings from companies, including MTN, Absa, Old Mutual, MultiChoice (owner of DStv), Transaction Capital (provider of loans to the taxi industry) and TFG (a retailer), that economic conditions in South Africa are worsening.
Telecommunications giant MTN was more withering in its assessment: its CEO Ralph Mupita said South Africa risked becoming a failed state if the government did not arrest the country’s decline, especially on the electricity front.
Investors are becoming increasingly wary of investing in companies that are exposed to South Africa. MTN, Absa, Old Mutual, MultiChoice, Transaction Capital and TFG have seen their collective value on the JSE plunge by more than R30-billion in a few days. Investors, in their droves, sold their shares in these companies.
But the immediate concern is rolling blackouts.
Companies are being forced to break the bank by spending more money on back-up electricity solutions – such as generators, battery storage facilities and solar panel installations – to survive rolling blackouts, especially during higher stages.
Without alternative sources of electricity, retailers would be forced to shut their doors, affecting the nation’s access to food and other goods. The banking system would be threatened as commercial banks would not be able to effect transactions with speed for consumers and businesses. The quality of telecommunications would be poor and the country would face the worst-case scenario of a communications blackout.
Based on financial results and trading statements published by some of the largest JSE-listed companies in recent weeks, DM168 estimates that the impact of rolling blackouts on the economy was at least R15-billion in 2022. That year shaped up to be SA’s most intensive year of rolling blackouts, when the country was in perpetual darkness for 208 days.
But the R15-billion estimate is highly conservative because not all of the 350-odd companies on the JSE have detailed the impact of blackouts on their operations. And the estimate doesn’t factor in companies that are not listed and are privately owned, mainly small and medium-sized businesses. These businesses, unlike big corporations, do not have the financial wherewithal to set up back-up power sources to keep their operations going.
Regardless, the R15-billion could have been deployed by companies to investment initiatives that expand their operations and in the process grow an economy that is in the doldrums, and create jobs to make a dent in the official unemployment rate of 33%. Instead, they are pouring billions of rands into consumption measures such as buying generators that guzzle diesel and solar panel installations/investments that typically have a payback period of between six and 10 years.
Impact on retailers
TFG – a retail group with more than 30 brands that dominate shopping malls, including Foschini, @home, Totalsports, Jet, Sterns and Markham – has by far, in South Africa’s retail industry, experienced the largest impact of blackouts (in rand terms) on its operations. TFG says rolling blackouts cost it at least R1-billion in lost sales during the past 11 months.
TFG said that during blackouts, consumers spent less and visited malls less frequently. It was forced to close stores during blackouts, which then affected trading hours.
About 70% of TFG stores have back-up power, which is effective up to Stage 4 of the load shedding schedule. During higher stages, it becomes costly to operate generators that keep stores illuminated and open.
TFG said the persisting energy crisis was adding abnormal costs to its business and it could not pass these costs on to consumers, who were already facing financial pressures on many fronts.
The impact of blackouts on the retail industry goes beyond TFG. More retailers are spending money on diesel and sacrificing higher profits in the process.
The spending on diesel and shutting down of stores during higher load shedding stages has eaten R90-million from the profits that Woolworths generated locally during the six months ending December 2022.
Africa’s largest supermarket retailer, Shoprite, was forced to spend R560-million on diesel to power its stores during the six months to 1 January 2023, which is R465-million more than it spent in the comparable period in the previous year.
Depending on the load shedding stage experienced, Pick n Pay is spending R60-million a month to run diesel generators to keep the lights on.
Retailers are also losing money because of the food wastage caused by blackouts, as some of their cold-storage facilities don’t work without electricity.
Shoprite has also found ways to survive the cold-storage conundrum. In 2022, the retailer ramped up its initiative of installing solar panels at its properties and on its vehicles. Shoprite’s fleet includes 903 trucks and 1,360 trailers, of which 1,041 trailers are fitted with solar panels, which allows food to be refrigerated when it is being transported by road from farms to stores.
Visit Daily Maverick’s home page for more news, analysis and investigations
Food manufacturers and farmers
Even food manufacturers, which are crucial cogs for South Africa’s food security, are feeling the pinch. Tiger Brands makes many of South Africa’s household brands including Albany bread, Tastic rice, Purity baby food, Koo canned food, Jungle Oats, Oros juice, Black Cat peanut butter and All Gold jam.
Although Tiger Brands’ factories are equipped with solar, the group still depends on back-up generators, which are costing the company at least R15-million in maintenance.
It is also planning for the eventuality of higher load shedding stages, up to Stage 8. It plans to invest R120-million in additional generating capacity to survive the more brutal rolling blackouts. The company is also investing in water-storage facilities to “mitigate the adverse impact of load shedding at these levels on municipal water supply”. So, it is bracing for a water crisis.
The poultry sector is also feeling the pain of blackouts, which are preventing farmers from ventilating their chicken coops and irrigating crops, and impeding abattoirs from slaughtering birds.
On 3 February, agricultural industry body Agri SA wrote to the National Disaster Management Advisory Forum (an intergovernmental forum that is responsible for reducing disaster risk), saying that the agriculture sector lost an estimated R23-billion in just nine months last year.
“To prevent further damage to the agriculture sector, immediate access to electricity is needed over the next few weeks. Irrigation is a crucial process in agriculture, as it enables farmers to grow crops, especially in inadequate rainfall areas.
“Without irrigation, farmers would be dependent on rainfall to water their crops, making them vulnerable to load shedding and causing damage to irrigation systems when the electricity supply is unreliable. This already has a loss of income for farmers due to crop failure and a reduction in agricultural productivity,” Agri SA wrote.
Broken telephone lines
Another aspect that is affected by rolling blackouts is how the country communicates.
MTN has warned that it is becoming increasingly difficult to stabilise its telecommunications network and infrastructure during higher load shedding stages. It is also spending millions of rands to survive the crisis.
Rolling blackouts have shaved off R695-million from MTN’s earnings for the year ending 2022, as the telecommunications giant had to spend more money on generators and back-up battery storage, which power its cellphone towers during blackouts. During this period, MTN deployed more than 2,000 generators to electrify its cellphone tower sites and keep them going during higher load shedding stages.
But even back-up power systems have limitations. Not only do generators guzzle a lot of litres of diesel, the higher stages also don’t allow enough time for batteries to charge. Battery back-up systems generally take 12 to 18 hours to recharge, and batteries have a capacity of about six to 12 hours, depending on the site category.
The outlook for power cuts is worrying and MTN’s Mupita doesn’t expect the energy crisis to ease, saying he “anticipates sustained elevated levels of load shedding over the near term”.
If rolling blackouts are escalated to higher stages than currently provisioned for, MTN plans to aggressively roll out batteries, generators and alternative power supplies that can electrify its cellphone tower sites, even during higher stages.
MTN’s load shedding survival plan is due to be finalised in May, but Mupita said parts of it had already been implemented because the company was in the process of deploying battery storage/back-up solutions. This is stage three of MTN’s plan.
Stage 4 involves deploying more generators at more cellphone towers. The survival plan will be implemented in the Eastern Cape and northern provinces, areas that are largely underserved by telecommunication services.
This plan is also being implemented partially to shield MTN from the potential collapse of the national grid. Mupita said he believed a total breakdown of the electricity grid was unlikely but not impossible. But MTN’s stance was that it would rather be prepared for any eventuality.
A grid collapse could last days, weeks or longer, depending on the severity of the damage to the country’s electricity network, and the time it takes to restart it. A grid collapse could lead to violence, looting and damage to infrastructure such as sewerage reticulation, which depends on a stable supply of electricity to keep running. Countries including the US, Venezuela and Pakistan have experienced grid collapses.
Vodacom has also spent a lot of money to keep its network going during power outages. It was forced to spend a record R5.8-billion on its local network and buying back-up power during the first six months of 2022.
But the company’s patience is wearing thin. Vodacom said it could not continue to invest billions of rands in back-up power systems if the electricity crisis continued to worsen, especially in the case of a national power blackout.
The banking industry is also worried about the perennial power cuts. The South African Reserve Bank, through the Financial Sector Contingency Forum (FSCF), is preparing contingencies for a national grid failure. The FSCF was instituted after the 9/11 attacks in the US.
Although the central bank also stressed that a regional or national grid failure was unlikely, it said it had to look into such systemic risks, as part of its mandate to maintain financial stability in the country.
The bank has been making plans to respond to a national or regional electricity grid failure since 2015, noting that the preparations formed part of its responsibility to compile and test crisis management plans.
But for now, commercial banks are counting the costs of not having reliable electricity from Eskom every day. Standard Bank’s diesel costs ballooned by 300% from R18-million in 2021 to R72-million in 2022.
FNB said the cost of running its banking operations increased by more than 500% to R40-million during the six months to December 2022, from R6-million over the same period in 2021. Nedbank spent R59-million buying diesel to power its operations in 2022. And Absa said, depending on the load shedding stage, it expected to spend between R200-million and R350-million on diesel in 2023 and 2024.
More investments in the economy
On the plus side, investment in renewable energy sources such as solar is set to explode and attract millions of rands. Property owners and landlords are realising that they have to invest in solar panel installations and other sources of power, or risk losing tenants.
Growthpoint owns a portfolio of properties, including shopping malls, office buildings and warehouses, worth R161-billion, of which R70-billion is in South Africa. It co-owns the V&A Waterfront in Cape Town. Growthpoint’s South Africa CEO Estienne de Klerk told DM168 that by the end of June 2023 the company would have invested about R500-million to provide back-up power solutions (including solar) for its more than 2,000 office, warehouse and retail tenants (some of which include Woolworths, Pick n Pay, Shoprite, MTN and Vodacom).
Most of Growthpoint’s tenants still rely on the generators it provides, but De Klerk said the company would have doubled its solar generation capacity to 27.4MWp by June, lessening its dependence on generators.
Vukile Property Fund owns shopping malls that are mostly based in townships and rural areas including Dobsonville Mall in Soweto, Gugulethu Square in Cape Town and Daveyton Mall on the East Rand. About 70% of its malls trade during rolling blackouts thanks to generators. But Vukile plans to invest R350-million over the next 10 months to instal solar panels and battery-storage devices. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.
Become an Insider
And yet, unity and renewal are priority Nr 1…
In the tourism industry, many of our annually returning guests have indicated they will not return next year as rolling blackouts this year have made for an unpleasant visit. The tourism industry, hit hard by COVID is now being destroyed by blackouts.
A failing State? the State has failed already. just imagine what it will take to recover the losses caused by the ANC never mind the growth aspect which is a long way away.
the we have idiots in the form of the EFF who march, protest, wreck to close businesses down so the cost of food becomes more expensive. the ignorant voters continue to vote in ANC and EFF! makes one really want the end of the world to come quickly!
We became a failed State the moment the Zondo Commissions report was relegated to the back of a large cupboard and our Presidents sofa acted as a bank! What is it with furnishings these days lol! Just an indication of how seriously our political hierarchy take their jobs and what they think of the people they’re meant to protect, encourage and embrace!
The Ramaphoria of business has soured and they are counting the costs of the incompetence and corruption they have been supporting and that ought to be the headline. We must not massage the truth to suit a certain narrative. People have realised now that state capture is a revolving door of ANC leaders as de Ruyter has now revealed that there is no difference among them. Cyril has shown from the first day in office that he has never been interested in dealing with the problems of the country. He was interested in occupying office and his first underwhelming five years are telling with the media blaming the rubbish of his margin of win in his party. A first in the world where media justifies complete incompetence and lack of vision to a margin of win in a contest of a party which is gutter journalism. The media has now been telling us about taxis who do not support a shutdown but we know that they have never supported msss action during Apartheid and there is nothing different today. Even Cas Coovadia whom I shared a cell with during the 1985 state of emergency who is opposed to the shutdown as a spokesperson of BUSA does not surprise me. It is expected that in these days he sings for his supper! That business are counting the costs yet they are opposed to a long overdue mass action in the form of a shutdown to send a message to the incompetent government is surprising. The first shots are being fired and the ANC regime must know that repression has its consequences.
The double whammy is that a large percentage of the additional cost to South African companies is spent on imports, ironically creating economic growth in other countries, and draining funds from our economy. On the other hand, international tourism is one of the most direct value added sectors to the SA economy and loadshedding being added to broken infrastructure, crime, etc simply adds to the declining attractiveness of SA as a destination.
Interesting and of great concern if you are a shareholder on the JSE, but respectfully , apart from the agricultural and food distribution sectors, the companies mentioned are secondary (and we could survive without) and not the root foundations of a functioning economy nor do they employ many people proportionally to revenues.
Imagine trying to operate a small foundry, a plastic converting business or a machine-shop with CNC lathes, etc., where the power required cannot be provided by anything but a very large and expensive (to buy and run) generator and a power outage can severely damage machinery, curtail a melt for casting or ruin an extrusion cycle-with need to cool-down, clean out and start all over again. These companies were already under the cosh with competition from imports, fractious labour issues, protection rackets and collapsing economy. Take a tour of the once active industrial areas from Chamdor in the West to the East Rand and see the shuttered factories. Most new construction is for warehousing and logistics- to handle the imports which now make up the majority of manufactured goods. This is where SA is failing so badly. RW Johnson posited a mining economy-with some support industries-could prove to be correct!
I work for a company in the Garden Route which is owned by a foreign investor that caters mostly for tourists visiting our area. With the current situation and no feasible solution on the horizon, the investor is now keen to sell and move their investments out of our country. They cite crumbling infrastructure and a seemingly unwillingness on the part of government both locally & nationally to encourage investment and thus stimulate growth…
Somebody tries to kill de Ruyter for trying to expose the cancer of corruption that is deeply embedded within the “failed State”. This is the CEO of the most important parastatal in the country and what is the response from government ? Do the Hawks descend to interview the man, take statements etc ? No rather two “middle-aged” detectives arrive and when De Ruyter advises he had high levels of cyanide in his bloodstream, they ask “do you have a “cynus” problem” ?
Neither Ramaphosa nor Gordahn saw fit to defend the CEO they themselves asked to take on the onerous task of turning Eskom around. They let run the ridiculous allegation from Mr Trash Mantashe that de Ruyter was somehow trying to “sabotage the State”. They didn’t even seem particularly concerned at the attempt on de Ruyter’s life.
The CSIR recently ran a spurious comparison of De Ruyter’s record on load-shedding vs previous Eskom CEOs – no doubt at government’s behest. De Ruyter inherited a complete shambles from his “State Capture” era predecessor and when he attempted to deal with the underlying root cause (endemic corruption), he was undercut by his own mentors who advised him “you have to allow them to eat”. The CSIR is obviously just another hollowed out State institution trotting out a narrative which seeks to cast De Ruyter as a scapegoat whilst remaining completely and conveniently oblivious to the rampant corruption which he exposed. And is primarily responsible for SA’s load shedding debacle.