Counting the cost of Eskom’s power cuts

Eugene Brink says small and medium sized businesses are bearing the brunt

The comprehensive impact of Eskom’s power cuts

10 February 2020

Hot on the heels of the announcement by Andre de Ruyter, Eskom CEO, that rolling blackouts (load-shedding is an erroneous term) will be part of our future and the swift realisation of that statement, comes the announcement by Gwede Mantashe, minister of mineral resources and energy, that government hopes to create another state-controlled power utility distinct from Eskom. Private investors will apparently be invited to invest in such a venture.

The implications of Mantashe’s statement and feasibility of such an entity are problematic and deficient, to say the least. For one, it implies that government has abandoned the search for real and difficult answers to Eskom’s travails. Not even telling De Ruyter of your plan to create a brand-new power utility – and failing to also mention steps to help Eskom get out of its mess – intimates this. Second, no private investor will throw money at something that is still state-controlled in South Africa – and government competing with itself is not competition.

Thirdly, creating another government entity to perform the duties of an existing one and staffing it to the hilt with unfit-for-purpose workers will certainly please the labour union bosses, but it makes no economic sense and does not solve the capacity problem. But, then again, foresight, problem-solving and strategy are not the ANC’s strong suits nor its desire.

The other, more obvious, but also more flagrant, aspect is bigwigs like Mantashe’s total disregard for the impact and inconvenience that their incompetence and obstinacy is causing our society.

Small and medium-sized businesses and workers (which, someone like Mantashe at least purports to care about) are bearing the brunt of Eskom’s woes. Whilst recently visiting a prominent shopping centre in Pretoria over a weekend, I noticed how empty the (usually crowded) mall had been. People promenaded past sweltering, dark shops that only allowed for cash purchases. Some were closed for those two hours for fear of theft. The restaurants, usually a hive of activity, were largely empty. Also noticeable was the number of vacant stores. Some shops were closed for fear of theft.

Most respondents in an MBA study by Ariel Goldberg at the Gordon Institute of Business Science (GIBS) considered the impact of load shedding to be severely negative. The Council for Scientific and Industrial research (CSIR) estimated the cost of power cuts to the South African economy for 2019 to range between R59bn and R118bn. It doubtless contributed significantly to the contraction in the gross domestic product (GDP) during two quarters of 2019 (we are yet to find out what the fourth quarter data looks like, but we at least know that it won’t be good).

Put into percentages, economist at the Efficient Group, Francois Stofberg, told BusinessTech that it is estimated that power outages slashed some 0.3% off South Africa’s GDP in 2019. “It’s difficult to grow if there’s no power and even more so if producers perceive that there will be a lack of power. Businesses do well in an environment of consistency and are often reluctant to invest long-term capital in an unsure environment,” he said.

Even more serious is the impact on hospitals. Kwara Kekana, spokesperson for the Gauteng Health Department, told news service EWN that they needed a reliable power source at hospitals. “Our facilities are impacted because the power is not reliable. Chris Hani Baragwanath Hospital has about 17 generators. The biggest generator we have can run for about 10 days.”

Although large and private hospitals are equipped with back-up power, smaller clinics are often not so lucky. Moreover, maintaining back-up power imposes an extra cost burden. In the private and public sectors these costs are passed onto patients and taxpayers, respectively. Corruption, negligence, low morale and irregularities in the public health sector are already at record-high levels. And what if the generators fail because of overuse, poor maintenance or even technical problems?

Stories of people forgetting to turn off appliances such as clothes irons when the power goes out, have become commonplace. This has caused fires and – along with appliances such as geysers going bust – a spike in insurance claims. It could also claim lives.

Add to this deleterious mix the productivity lost due to people arriving late for work because of chaos on the roads when traffic lights don’t work. Vehicle accidents have abounded. The impact of these occurrences is incalculable but no doubt highly destructive. It is not only devices that don’t work when the power is off, but people too.

Where De Ruyter at least appeared contrite when announcing his sombre yet unsurprising news, Mantashe and his trade union allies refuse to even acknowledge the pain, convenience and hardship that is being caused. And whilst De Ruyter is trying to remedy the situation within his constrained manoeuvring room, Mantashe and his colleagues refuse to admit culpability and make the necessary reforms.

Instead, there has been very little except bluster, blame-shifting, scapegoating, insincere apologies and even hubris. No alarmism and constant genuflection are necessary, just an acknowledgement of the challenges and some real action. It’s not that difficult to get the ball rolling, but Mantashe and his ilk are hell-bent on taking us back to the 19th Century – when electricity was in its infancy and their beloved Communism hadn’t failed quite so spectacularly yet.

Dr Eugene Brink is a strategist and political and economic analyst