JOHANNESBURG (Reuters) – Three of South Africa’s top four lenders have warned that hours of daily power cuts could hurt small and medium-sized enterprises (SMEs), which are considered the backbone of the nation’s economy.
SMEs in Africa’s most industrialised nation represent more than 98% of its businesses and employ more than half of its workforce, according to a McKinsey study.
Issues affecting this sector could in turn further hurt gross domestic product, which shrank a greater-than-expected 1.3% in the final three months of last year.
State-utility Eskom implements daily power cuts, called load-shedding, in stages with Stage 1 the lowest. At stage 6, power could be cut for more than 10 hours a day, resulting in some of the harshest blackouts in living memory.
Nedbank said in its earnings release this week that costs to the economy in lost production would escalate exponentially to about 408 million rand ($22.32 million) per day at stage 4, and more than double at stage 6, with the brunt falling on SMEs.
Agriculture, manufacturing, restaurants, food services, retail supply chains and tourism are more exposed and will incur losses and higher operational costs for running generators, it added.
From the second half of last year, debt-laden Eskom’s power plants have frequently broken down, creating a headache for President Cyril Ramaphosa’s government and the country’s businesses over how to keep the lights on.
“Higher stages of load-shedding towards the end of the calendar year presented a challenge for small and medium-sized enterprises (SMEs) and sole proprietors, in particular,” FirstRand, the country’s biggest bank by market capitalisation, said this week.
Standard Bank, the largest lender by assets, also said South African GDP growth was expected to be hampered by the daily power cuts.
Rating agency Fitch said on Friday persistent blackouts have “caused significant disruption and reduced business confidence, currently at a two-year low.”
This adds to existing asset quality and profitability pressures for local lenders, who are otherwise said to be among the most capitalized banks in the continent.
($1 = 18.2801 rand)
(Reporting by Promit Mukherjee; Editing by Sharon Singleton)
