Load shedding Places Continuous Strain on Manufacturing Sector

Load shedding continues to place strain on various sectors of the South African economy.  According to an article by financial institution Payabill, highlighting the ways in which load shedding is seriously inconveniencing businesses in South Africa – the impact is significant.

A survey conducted by the South African Property Owners Association (SAPOA) reiterates this stark reality, furthering the need for long-term sustainable solutions that can ensure the continuity of business operations.

The survey which is released on a quarterly basis, is compiled of the responses from 700 business people in the manufacturing sector and was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 10 and 30 May 2023.

The survey reveals that load shedding has increased operational costs for businesses, as they’ve had to invest in alternative power sources, such as solar panels, UPS systems, or diesel generators, to maintain standard operating levels. There has also been an alarming slowdown and loss of production.

In industries where businesses rely on electricity for machinery, technology, and lighting – power outages disrupt operations and prevent companies from reaching their production targets leading to profit losses. Increased cases of theft burglary and damage to electronics have been reported.

Absa also released a Q2 Manufacturing Survey that confidence levels in the manufacturing sector remain near the lowest points reached during the previous business cycles, as load shedding weighs on sentiment.

The graph below indicates that sentiment has improved significantly since the record-low rating during the pandemic. stood at 5 points, historical data shows that confidence levels have rarely reached this level. The Q2 confidence level has remained unchanged at 17 points since the previous quarters – lower 20 points reached during the global financial crisis.

The confidence index ranges between zero and 100, with zero indicating an extreme lack of confidence, and 100 indicating extreme confidence, signifying that all participants are satisfied with current business conditions.

00-[The Head of the Manufacturing Sector at Absa Relationship Banking delves into what these figures translate to for the manufacturing sector stating, “Electricity supply disruptions not only directly weigh on production and capacity, and hurt profitability due to the costs associated with load shedding mitigation measures (such as diesel generators), but also negatively impact sentiment,” adding, “With confidence levels remaining at the same very low levels seen in the first quarter, the effects of load shedding are visible across manufacturing subsectors.”

As the tough economic environment continues to constrain household disposable income, manufacturers are not only faced with a reduction in sales volumes but are also seeing a slowing of price inflation with regard to selling prices in both the local and international markets.

Compared to the first quarter, domestic sales and the domestic selling price per production unit dropped by 22 and 19 points respectively, while export sales showed a 15-point decline and export selling price per production unit dropped 14 points. Further evidence of the impact of load shedding is visible in the lower levels of production and the increased level of capacity underutilization.

“As the intensity of load shedding remains high, the cost of load shedding in the form of both production downtime and diesel purchases for generators are causing margin pressure,” Schmidt said.