Power cuts spark a jobs bloodbath at spaza shops

Two-thirds of businesses operating in townships across SA have had to reduce employee headcounts as they grapple with the effects of power cuts on their operations.

A survey by Nedbank, conducted in partnership with the Township Entrepreneurs Alliance, found that of the 200 small township businesses surveyed, 66% shed jobs because of the financial effects of load-shedding and 5% of businesses had to close their doors.

“Given that spaza shops contribute about 6% to SA’s GDP, employ 2.6-million people and represent an economy of about R600m, the results are troubling and require a response from both the private and public sectors,” said Dayalan Govender, managing executive for solution innovation at Nedbank, during a webinar on the survey.

Lizzy Mogale, managing executive for insights and advisory at Nedbank retail and business banking, said in the worst affected manufacturing and food and beverage sectors, up to 83% of business owners indicated they had to reduce staff to mitigate the effects of load-shedding on their businesses.

SA has been experiencing load-shedding since 2007, but the frequency and intensity of planned power cuts have escalated to unprecedented levels. Despite interventions by Eskom and the government to improve Eskom’s generation performance, Nedbank economists expect load-shedding to persist over the next three years.

So far, 2022 has been the most intensive year of load-shedding, with 157 days of outages. The 2023 outlook is even worse, with some experts seeing stages 7 and 8 load-shedding for the first time this winter.

While most businesses in SA are hit hard, the outcome is often worse for smaller businesses that cannot afford alternatives.

Nedbank’s report said due to the high cost of alternative energy sources such as solar power or diesel-powered generators, some small businesses are forced to close shop for a large part of the day, limiting their ability to generate revenue.

“The challenges are more pronounced for small businesses located in townships and rural communities where there is often a lack of information, limited access to alternative energy solutions, and affordability constraints,” the report said.

The survey showed that more than 60% had to halt their operations completely during load-shedding. Not only new businesses but older, well-established ones are shutting down or cutting back on output.

More than a quarter of the businesses surveyed have been operating for three to five years, and about 8% for six to 10 years.

As could be expected, those businesses with greater reliance on electricity to run their operations such as small manufacturing businesses were affected the most by load-shedding.

Businesses in this segment that use electricity to run sewing machines, compressors and wood cutters, for example, said one way to cope was to switch to manual manufacturing, which was less efficient.

In some instances they also have staff work longer hours and negotiate reduced pay with existing staff members.

Food and beverage businesses were among the most affected, many incurring losses from spoilt food that could not be kept cold enough during long bouts of load-shedding and had to be thrown away.

Extra costs

The research showed that in all sectors businesses are incurring extra costs to keep their businesses running during load-shedding. These costs are incurred mostly in buying fuel for generators and rechargeable equipment, replacing wasted and spoilt goods, as well as repairing damaged appliances.

“Since the onset of sustained load-shedding, businesses surveyed are losing, on average, just over R35,000 in revenue per month because of load-shedding, though it varies across sectors,” Nedbank said.

In addition to the financial effects, the survey pointed to the mental health effects of the power crisis on employers and employees of small township businesses alike.

“Despite the incredible hustling resilience of these business owners, there is a sense that people are starting to give up because it feels as though they are fighting a losing battle,” Mogale said.

“When resources such as electricity and water become unavailable, deprivation can lead to hopelessness. This points to the need to support small business in dealing with mental health [aid],” she said.

erasmusd@businesslive.co.za