Load Shedding Cracks South African Business Landscape as Liquidations Mount

South Africa’s continuous power cuts, colloquially known as load shedding, are pushing businesses to the brink, driving up liquidation numbers in the country. Recent figures published by Stats SA show that 523 companies have folded this year, painting a bleak picture of the nation’s business landscape.

Dissecting the Liquidation Numbers

A total of 112 businesses closed down in April 2023 alone, with 99 voluntarily liquidating and 13 undergoing forced liquidations. Adding these to the 168 that were liquidated in March, the tally for the year rises to an alarming 523.

The finance, insurance, real estate, and business services sectors were the hardest hit for the fourth consecutive month in 2023. A total of 204 businesses in these sectors have folded since January, including 45 in April alone. Other affected sectors included unclassified industries and the trade, catering, and accommodation industry, which reported 26 and 24 liquidations respectively in April.

Miraculously, the electricity, gas and water industry, along with the agriculture, hunting, forestry, mining, and quarrying industries, have so far managed to escape the liquidation wave.

SMEs Under Siege from Load Shedding

Load shedding is particularly hard-hitting for small and medium-sized enterprises (SMEs) in South Africa. A vast majority have seen revenue and production losses due to the power cuts, according to a recent parliamentary Q&A session with the Minister of Small Business Development.

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Minister Stella Ndabeni-Abrahams drew on a research study conducted by the Small Enterprise Finance Agency (Sefa) in August 2022 to highlight the impact of electricity blackouts on small businesses. The study was initially intended to survey 1,500 Sefa clients; however, only 214 responded. The businesses surveyed represented a broad spectrum of industries, including manufacturing, retail trade, hotels and restaurants, construction, transport, community services, financial services, agriculture, mining, and quarrying.

Key Study Findings

  • All respondents reported revenue and production losses due to load shedding.
  • 76% revealed they had no alternative power sources to offset load shedding effects.
  • To manage the impact of load shedding, most businesses utilized load shedding schedules to plan their operations and have downscaled production.
  • Most respondents stated they need funding assistance to acquire alternative energy sources and restructure their loans.
  • The majority of these businesses had been operating for 1 to 5 years.

Moreover, the irregular and escalating load shedding has inflated wage expenses, as businesses have turned to casual labor to align with unpredictable load shedding schedules.

Considering 2023 has already seen the worst load shedding to date, and considering the study data is from August 2022, the current economic conditions for SMEs are likely more daunting.

Stepping Up to the Plate

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Addressing the issue, Ndabeni-Abrahams acknowledged the struggles faced by SMEs due to the intensifying load shedding. She said her department and associated agencies are working on a three-pronged approach to support the beleaguered SMEs and Co-operatives.

The suggested measures include:

  • The Power Purchase Product (PPP), aimed at providing alternative power sources to both formal and informal enterprises.
  • A guarantee program via the Bounce Back Scheme managed by Khula Credit Guarantee (KCG) on behalf of the government.
  • Consultations with various stakeholders to promote innovative ideas and develop sustainable, long-term energy supply solutions.

Before these initiatives can be rolled out, endorsement from the National Treasury is required, Ndabeni-Abrahams added.

As South Africa grapples with the twin crises of load shedding and liquidations, the country’s SME are in desperate need of swift action and effective interventions. The proposed measures represent a ray of hope in these challenging times, but their timely implementation will be the true test of their effectiveness.

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