Special Feature: Accounting for darkness (Part Two)

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SA CFOs reveal the impact the country’s power crisis is having on people, business, and the economy.

CFOs around the country are concerned about ongoing rolling blackouts that, according to Eskom’s now-former CEO Andre de Ruyter, will likely be around for at least the next 18 months. The grid’s failure is badly affecting productivity, especially at heavy industries, and resulting in the need for massive investments, which are eating into cash flow reserves.

During his State of the Nation address on 9 February, president Cyril Ramaphosa declared the power issue a national state of disaster and shortly thereafter appointed Kgosientsho Ramokgopa as Minister of Energy. Ramokgopa has since said that South Africans should be patient with the power crisis plaguing the country. Measures to right the situation are urgently required, as the economy is losing as much as R900 million every day when stage 6 is in effect, according to the South African Reserve Bank.

In the first part of the series, some of the country’s top CFOs unpacked the impact loadshedding is having on productivity and how it is adding additional costs to the balance sheet.

Yusuf Bodiat, CFO of The Federated Employers Mutual Assurance Company, says that prices will have to go up so businesses can manage the operating costs of the current period of a lack of power. This may, consequently, result in lower sales or consumers having to spend more for goods and services.

South Africa Flight Centre Travel Group CFO Averen Deonanan agrees with Yusuf, saying that spending power for consumers, too, is under pressure. Energy is a large driver of inflation, accounting for 8.7 percent of inflation, according to Statistics South Africa.

A more serious issue is that stability of essential items such as vegetables and maize meal cannot be guaranteed, says Andri Geel, CFO of agricultural company GWK. She adds that the problem also affects prices. “As a business, we’ve done detailed work in terms of the impact, and manage these daily.”

In addition, loadshedding is also changing the world of work, with people having to go into the office where there is backup power, costing them fuel to drive to work. Companies that have implemented backup measures are seeing their operational expenditure climb, says Yusuf.

“Ultimately, individuals and households will feel the pinch as they will be receiving lower incomes as their employers/companies are cutting costs (on the one hand), and household expenses are increasing as prices of goods and services are increasing (on the other hand),” says Yusuf.

Retailers are also set to be hit by lower spending power, with sales during the Black Friday frenzy this year expected to be R5,4 billion lower than it would have been if South Africa was not experiencing so many days of load shedding, which has been at high levels throughout 2022, according to new research conducted by the Bureau of Market Research (BMR) on behalf of Capital Connect.

The research also finds that the motor trade is forecast to generate additional sales value of R5,9 billion over the busy promotional period, which is R2,9 billion lower than would be expected in a year with less load shedding.

Says Professor Carel van Aardt, Research Director at the BMR: “With a stagnating economy, rampant unemployment and rising inflation, the Black Friday period this year is about shopping for survival. With bleak economic prospects, we can expect to see consumers stock up on necessities rather than splashing out on luxuries for themselves or buying early Christmas presents for their loved ones.

“The hot sellers this year—apart from groceries in bulk—are likely to include gadgets and equipment to help consumers navigate the loadshedding crisis. In an environment of poor consumer confidence and weak discretionary income, we can also expect to see consumers trade down from expensive brands and products to white label brands and more affordable substitutes.”

Capital Connect says that the current situation of low economic growth and high unemployment will likely lead to a relatively weak Black Friday, with growth that battles to keep pace with inflation. However, there is a demand for alternative power solutions. Year-over-year, consumer interest in inverters has increased by 56 percent, generators by 29 percent, uninterruptible power supplies by 29 percent and solar systems by 34 percent.

The retail sub-sectors that will gain the most additional revenue over the Black Friday period will be general dealers (R7.7 billion); clothing, textile, footwear and leather retailers (R5.5 billion); and furniture, appliance and equipment retailers (R1.6 billion). These amounts could have been substantially higher without loadshedding, with general dealers alone losing out on R577 million, says Capital Connect.

In motor trade, the bigger winners include accessories (R1.2 billion), fuel (R2.3 billion), used vehicles (R1.5 billion) and new vehicles (R516 million). New and used car sales are forecast to R1.2 billion less than they could have been in the absence of load shedding, while fuel retailers will be missing out on more than R870 million in potential revenues, it adds.

Apart from the cost to the economy, there is an indirect cost, says Sheldon Friedericksen, former CFO and currently general manager of group benefits at Fedgroup, in that people’s ability to cook a nutritious meal “removes the level of optimism required for growth, and the will to try something new. South Africans are also unable to relax because the lights are out, and spend too much time in traffic.

“All these aspects and more remove the level of optimism required for growth, and the will to try something new.”

Yusuf adds that the longer-term impact of loadshedding for everyone is mental wellness difficulties due to the issues everyone faces.

This article was originally published in the first edition of the 2023 CFO South Africa Magazine. Read it here.

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