Load shedding solutions for cash-strapped SMEs
Johannesburg – South African entrepreneurs have in the past shown resilience in trying to stay afloat despite the challenges posed by the unreliable power supply provided by Eskom.
Entrepreneurs have leveraged relationships with each other, and the private sector tried new and innovative ways to reach new customers and approached alternative lenders to fund growth.
The truth is that these measures are not sustainable in the long term, according to the CEO of Fetola, Catherine Wijnberg.
“But these are short-term measures with considerable cost to the profitability and well-being of the company. Even with these workarounds, the impact is huge, with some businesses reporting June 2022 as their worst month ever, others having to put staff on short time, and the potential for business closures,” she said.
President Cyril Ramaphosa addressed the nation on Monday, July 25. During his address, Ramaphosa announced a set of interventions that the government would adopt to end load shedding and achieve energy security.
The National Energy Crisis Committee (Necom), comprising various ministers, was established to spearhead the proposed interventions aimed at achieving energy security.
Necom stated that its immediate objective was to reduce the severity and frequency of load shedding, and the long-term goal is to end load shedding altogether.
These interventions would have led many business owners to feel optimistic about what lay ahead.
However, the optimism quickly turned to despair when Eskom announced that stage 2 load shedding would resume yesterday and that it would be escalated to stage 4 on Thursday afternoon.
The impact on business and entrepreneurs can never be overstated as load shedding has a direct impact on productivity and their bottom line.
Catherine Wijnberg, the CEO of Fetola, a leading provider of scalable, world-class entrepreneurial support programmes for African entrepreneurs, lamented the economic effect load shedding has on the country.
She said: “It is estimated that in 2020, load shedding cost South Africa’s economy R500 million per stage, per day. This is the same for small businesses around the country, especially in manufacturing businesses where their entire business depends on electricity to drive their machines.”
“The problems are worse in rural and peri-urban areas where electricity cuts appear to be most severe, with some entrepreneurs reporting up to 12 hours of cuts at a time.”
The pressure is further compounded by factors such as inflation, which was recorded at 6.5% in May this year, up from 5.9% in April.
This had a direct impact on the interest rate, and the South African Reserve Bank’s Monetary Policy Committee (MPC) decided to increase the repurchase rate by 75 basis points to 5.50% per year.
Though the recent decrease in the fuel price will give businesses and consumers much-needed relief, the fuel price has increased by R10 in the past year.
Wijnberg recognises that although entrepreneurs do their best to find creative ways to work around some of the issues they are faced with, it may not always be sustainable to try to reshape a business model to adapt to these challenges.
“As always, entrepreneurs are agile, wily, and resilient and constantly look for solutions and workarounds. These include flexitime for staff, rescheduling tasks to accommodate the electricity outages, and buying generators to compensate.”
The economic climate in the country has also led to consumers having to be more frugal in their spending and being more price conscious.
“This makes an already harsh small and medium enterprise (SME) environment even more tricky as consumers flock to the malls for cheap bulk deals, and large players play the price-war game and win,” said Wijnberg.
Wijnberg questioned what the government was doing about ensuring that it created an environment where entrepreneurs and their businesses could prosper.
“The question is if we are relying on small businesses to create jobs and grow the economy. We hear statistics such as ‘SMEs will create 80% of new jobs’, and ‘SMEs currently employ 64% of workers’ – what are we doing to help them thrive?” she asked.
Wijnberg went on to offer some solutions on how key role players could come together and implement interventions that would foster an environment in which SMEs could not only survive but thrive.
“Government, corporate and small businesses have the opportunity to salvage the situation by adopting the words of our Struggle hero, Nelson Mandela, who said: ‘Do what you can with what you have, where you are.’
“To rescue businesses from this horrendous impact, the government can create small business park clusters where electricity supply is guaranteed, with no switch-off zones,” she said.
Another option for businesses was the use of alternative energy solutions, which might be expensive to procure and install, but by partnering with other businesses, the cost could be shared.
“Through collaborations, SMEs can also come together and apply for grant finance to install a private power production plant, or alternative renewable energy such as wind, solar, water turbines, and biofuel could provide solutions,” said Wijnberg
Planning is of paramount importance if SMEs are to successfully navigate the choppy waters of load shedding.
Entrepreneurs need to familiarise themselves with their load-shedding schedules and ramp up productivity around the times when power is available. To effectively do this, they need the buy-in of their employees.
Wijnberg highlighted the importance of SMEs and why it was of paramount importance to ensure an enabling environment for them to be successful.
“SMEs are the country’s bread and butter and should be safeguarded from the harsh realities of load shedding, fuel hikes, and high inflation rates. They provide employment to roughly 47% of the workforce, with their total economic output accounting for around 20% of the gross domestic product.
“However, to keep them afloat, all ecosystem stakeholders need to participate in ensuring the viability of local businesses. In efforts to ensure this, Fetola helps sustain thriving local ecosystems and delivers generational impact by partnering with corporates to create opportunities for entrepreneurs and SMEs to thrive and works with a community of experienced and like-minded SME growth professionals,” she said.
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