Load-shedding solutions for cash-strapped SMEs

By Catherine Wijnberg, CEO of Fetola

It is estimated that in 2020 load-shedding cost South Africa’s economy R500 million¹ 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. From tailoring businesses to bakeries, and print houses to food processing every cut in electricity means a cut in production. 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.

In addition, as the main drivers of the economy, small businesses are faced with the immense pressure of inflation hikes. According to the latest consumer price index published by Statistics South Africa, the annual consumer price inflation has broken through the upper limit of the Reserve Bank’s target range. Inflation was recorded at 6.5% in May 2022, up from 5.9% in April 2022².

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. But these are short-term measures with considerable cost to profitability and well-being of the company. Even with these workarounds, the impact is huge with some businesses reporting June 2022 as their worse month ever, others having to put staff on short time and the potential for business closures.

In the broader context, we are also seeing reports of consumers at all levels becoming more cost-conscious, cutting back on expenses and building a ‘price-first’ mindset. 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.

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? Simply stated, if we don’t procure and buy from small businesses, they will cease to exist and the chance of creating jobs and growing the economy will be lost.

 Light at the end of the tunnel

If we think of ourselves as being in the so-called decade of disruption then we need to plan for these challenges as the norm, starting by asking the question – if this is here to stay, what now?

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. 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.

SMEs should adopt healthy working conditions that will help in the success of their businesses during the unprecedented time of load-shedding. A model example of this is building morale by communicating the problem and making it a shared war to fight. This can also be achieved through scheduling tasks around load-shedding. Now is the time to buy local and support local businesses in South Africa because of their impact on society, and local businesses should not shy away from advertising their businesses as they produce local products and employ local people, hence ending poverty, inequality and unemployment in communities.

While small businesses may be faced with challenges of high pricing, they can collaborate with complementary SMEs to create affordable and appealing product packages, for example selling bread and butter as a bundled package, in addition to creating bulk-buy solutions to get better deals from suppliers.

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 product³. 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.

For more information, visit https://fetola.co.za/

1. https://www.africanews.com/2022/05/16/south-africa-battling-shortfall-of-generating-capacity-eskom-announces-load-shedding//#:~:text=Ongoing%20electricity%20disruption%20threatens%20to,million%20per%20stage%2C%20per%20day.
2. https://businesstech.co.za/news/finance/599092/inflation-hits-5-year-high-in-south-africa-heres-what-is-more-expensive/#:~:text=Statistics%20South%20Africa%20has%20published,from%205.9%25%20in%20April%202022.
3. https://businesstech.co.za/news/industry-news/371724/how-smes-will-make-africa-great-again/#:~:text=%E2%80%9CIn%20Africa%2C%20SMEs%20make%20up,%2C%E2%80%9D%20said%20Johannesburg%20Business%20School.