As South Africa is hit by gruelling level 6 load shedding, small businesses are seeking additional funding in their struggle to survive, says Old Mutual director for SMEs Nobesuthu Ndlovu.
Small and medium enterprises (SMEs) are now unable to provide goods and services as they normally would amid rotational power cuts hitting their cash flow.
This week local power generator Eskom implemented stage 6 throughout the week amid winter demand and an illegal strike by its workers.
Business Unity South Africa said earlier this week that this load shedding dealt a serious blow to an economy that was already struggling with low growth and a lack of decisive action on the part of government to make the necessary interventions to attract investment and put the country on a sustainable and inclusive growth path.
It added that it will be a serious blow to all sectors of the economy and could lead to small and medium businesses buckling under the pressure of managing an untenable situation.
She said SME’s expenses had now also increased, for example, instead of only paying for electricity, some SMEs were now having to buy gas to supplement the lack of electricity.
From a cash flow point of view, if they were getting customers at the same rate, while having to subsidise an increase in expenses for additional resources, like gas, it was going to have a negative impact on SMEs.
Ndlovu said he impact of load shedding on SMEs depended on the sector they traded in, but generally really knocked them.
“This question speaks to a couple of aspects. The first one being customer service: where small business owners are struggling to stay true to delivering on the promise that they have made to their customers as many SMEs already have limited resources as it is, and it is a real problem that many may struggle to keep up with the demand,” Ndlovu said.
The second element of load shedding’s disruptions was in the manufacturing space. Those firms that were creating physical products for large quantities or deliveries, for example, hair product manufacturers who produced products for large retailers.
Ndlovu said SME’s production was being slowed down and the sad reality was that clients, such as retailers, on the other side, as much as they all understood of the bigger issue, were still expecting the products to be delivered.
“This harms the SME from a financial perspective because a lot of clients will then only pay after receiving the stock. The delay in production means the delay in delivery, which results in further delays or further changes from a cash flow point of view. It really is creating quite a big ripple effect,” she said.
The prevailing economic environment certainly threatened the sustainability and existence of some of the small businesses.
“But again, the small business owners that are in the gas and renewable energy business are most likely doing very well because there’s a serious need for alternative power supplies…I don’t think South Africans are necessarily geared for this level,” Ndlovu said.
Andiswa Bata, the co-Head of SME at FNB, concurred that the impact of load shedding on small businesses had been profound.
“From the hairdresser who can’t complete client needs due to the inability to use things like dryers, to manufacturing entities who cannot afford to run generators for long periods in order to keep their production lines functioning for the full duration of load shedding. Not to mention the increased time it takes to transport goods/deliveries when traffic lights are out and there is congestion on the roads,” Bata said.
She said that in these ways, one could now see how crucial it was to ensure reliable, consistent power supply to give entrepreneurs the fighting chance they needed to fuel the post-Covid economic recovery.
“Of some consolation is the existence of funding mechanisms like the government-backed Bounce Back Loan Scheme and particular funding solutions for green energy (such as solar panels), for small businesses to consider if they are seeking to put in backup power that reduces the downtime from load shedding,” she said.
The recently released data from the 2019 Annual Financial Statistics (AFS) survey showed the growing role that small businesses play in the formal business sector.
Statistics South Africa said small businesses generated just over one-fifth of total turnover as industries in the South African formal business sector, and included in the AFS survey, generated R10.5 trillion in total turnover in the 2019 financial year.
A breakdown of turnover by business size showed that small businesses were responsible for generating R2.3trl (or 22 percent) of the R10.5trl. Medium-sized businesses contributed the smallest portion at 10 percent while large businesses accounted for the biggest chunk, just over two-thirds (68 percent) of total turnover in the 2019 financial year.