Small businesses in the Township Economy struggling to stay afloat amid crippling power cuts, Nedbank Insights Report finds

Township business owners say they’re struggling to stay afloat amid constant and crippling rolling blackouts. This is according to a Nedbank insights report conducted in partnership with the Township Entrepreneurs Alliance (TEA) titled ‘Impact of load-shedding on small businesses in the township economy’, which surveyed over 200 businesses across South Africa.

The intent of the survey was to quantify the impact of load-shedding on small businesses in township communities, unpack the drivers behind the impact and finally draw insights to help develop alternate solutions.

The key findings were as follows:

• 64% of township small businesses cease operations during load-shedding
• Almost 66% of business owners have shed jobs because of load-shedding
• Load-shedding has led to increased operating costs, lost revenue and declining margins, therefore affecting profitability
• Solar is the most preferred alternative energy option (although generators are the most used), but most businesses don’t know where or how to start looking for this solution
• Business challenges caused by power cuts are having an impact on mental health, resilience and the entrepreneurial ability to hustle.

The findings were discussed by a panel that was facilitated by Lungile Mashele, Energy Economist, and included Dayalan Govender, Nedbank Managing Executive Solution Innovation; Bulelani Balabala, Founder of Township Entrepreneur Alliance (TEA); Masopha Moshoeshoe: Green Economy Specialist & Green Hydrogen Lead in the IIO in the Presidency; and Franc Gray, Chief Lending Officer at Hohm Energy.

While the survey revealed that more than 60% of township small businesses cease operations during load-shedding, it also showed the resilience of small businesses in the township, with 19% turning to alternative energy sources and 17% improvising in other ways. Generators were the most prevalent alternative energy source but, although cheaper than an equivalent battery backup, the cost to run them can be quite high depending on load-shedding intensity.

“Given that spaza shops contribute around 6% of South Africa’s GDP, employ 2.6 million people and represent an economy of around R600 million, the results are troubling and require a response from both the private and public sectors,” said Govender.

Speaking around the finding that almost 66% of the respondents stated that they had been forced to shed jobs as a result of load-shedding, Lizzy Mogale, Managing Executive,: Insights and Advisory at Nedbank Retail and Business Banking, ,highlighted the following: “In the food and beverages as well as manufacturing sectors, 83% of business owners reduced staff count; in agriculture 76% of businesses and in IT services 70% of business owners mentioned that they had to let go of some of their staff. On average, only 29% had no staff loses, while 5% of these businesses were permanently closed.”

“The report has shed light on how small business owners are struggling to sustain their operations,” said Balabala. “Nevertheless, despite having to cope with the added costs around things such as of fuel to run generators, it also revealed the resourcefulness and resilience of township micro-enterprises, even under the most extreme circumstances and with little outside support.”

Green economy specialist Moshoeshoe noted that the research results were valuable as they shed light on the lived experience of township business owners. “These conversations are important because they enable a broader understanding of the daily disruption to livelihoods,” he said. “What is important now, is to determine the way forward. The interest in moving from generators to green energy is encouraging, and government and the private sector need to work together proactively to find ways to design affordable, sustainable solutions for these business owners.”

On the subject of solar power, Gray said it was clear that most business owners did not know where to start looking for solutions. “Collectively, we need to devise a strategy for educating cash-strapped businesses about solar solutions, including how to calculate power needs, and where to find reputable installers. Generators are the cheaper short-term solution but in the long term, solar is more cost-effective. The aim must be to demystify how it works.”

However, the impact of load-shedding on this sector goes beyond simply the numbers. The compound effect of Covid-19 lockdowns, the July 2021 unrest, intensified load-shedding, and increasing water constraints were reported to be putting a strain on the mental well-being of business owners and their employees. 

“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,” said Mogale. “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.”

Similar to the societal and business shift that occurred when the Covid-19 epidemic first hit our South African shores in 2020, business owners need to adopt a significant mindset and behavioural shift when looking at possible solutions to deal with load-shedding.

Survey participants made several suggestions around how some of this impact could be curtailed. These included reducing the length of load-shedding to one hour, making more affordable alternative power solutions available, making solutions more accessible, and finding external funding to help to ease the challenges they are being forced to confront.

Research Report live streaming  recording https://www.corpcam.com/Nedbank30032023