Impact of load shedding on the local Nelson Mandela Bay economy

A survey conducted by the Nelson Mandela Bay Business Chamber shows that load shedding is having a detrimental impact on investments and jobs in the metro, with one in five businesses reporting that they have cut jobs and over 90% halting investment and expansion plans.

With no end in sight to constant load shedding, and more than a third of businesses surveyed considering restructuring or relocating unless there is a significant improvement to the energy crisis, the Nelson Mandela Bay Business Chamber is calling for urgent implementation of strategies to mitigate the impact of load shedding on business.

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The survey which incorporated the participation of around 70 local businesses, focused on the impact of extreme load shedding on their operations and revealed that 75% of local businesses had been forced to implement short-time, while 18% reported job cuts amounting to 149 jobs lost in recent months.

* With around 700 businesses members of the chamber, the survey represents a sample size of about 10% of members.

The representative sample of local businesses was evenly split between large corporates and small and medium enterprises.

The results of the survey is concerning for the Bay’s already-strained and highly manufacturing-dependent economy.

As per Stats SA’s unemployment numbers we already experienced a 0.8% increase in unemployment in the fourth quarter of 2022, and it is our estimation that the real impact of load shedding on unemployment, production and investment will likely only be seen in the first quarter results for 2023.

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The fact that 91% of businesses surveyed have put plans for future investment and expansion on hold, and 36% are considering relocating out of the metro or leaving South Africa entirely, does not bode well for the sustainability of the local economy and job creation into the future.

Many of the businesses that have put their plans on ice are redirecting spending to cope with load shedding, such as installing alternative energy solutions, or shelving future plans while in certain instances their owners or boards consider relocation.

Businesses indicated that the risk of retrenchments and closures remained high due to the twin impacts of load shedding causing lost production and increased overhead costs incurred in mitigating the impact of load shedding with generators, solar power or inverters.

Backlogs and downtime

More than 80% of businesses surveyed reported negative impacts on production due to load shedding, and just over half said backlogs and delivery delays due to production downtime hampered their ability to meet export orders or participate in export-oriented supply chains.

Impacts include cancelled shifts, increased overtime to keep up with demand and meet orders, increased breakdowns and damage to machinery due to frequent switching off and on, and increases in scrap and waste.

For some manufacturers – and depending on their processes and whether they are seven-day-a-week operations – it is not possible to catch up on lost production. Some manufacturing processes need to be stopped an hour or more before scheduled load shedding and/or take several hours to re-start.

The survey had shown that a diverse set of solutions to mitigate the impact of load shedding on business is needed, due to the differing needs and resources of different types and sizes of business.

There is no one-size-fits-all solution, and we need to be urgently exploring all options. The municipality’s agreement to a voluntary 24-hour load shedding schedule for those manufacturers which meet the required criteria is helping to mitigate some of the impacts of frequent stop-start for those companies.

We are refining this with the municipality and the companies involved and working to bring more on board where possible.

Load curtailment 

Load curtailment is another solution when load shedding gets beyond stage 4 levels, whereby manufacturers who have demand management systems cut their demand, enabling production to continue uninterrupted, albeit at lower levels.

We also need to find more alternatives for smaller manufacturers that don’t have the type of electricity connections that allow for demand management and monitoring.

At the same time, we call on all businesses to cut non-essential load, such as air conditioning, even from stage 1 of load shedding, to reduce overall demand on the grid and keep load shedding at more manageable, lower levels.

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Our local economy is heavily reliant on manufacturing, which makes up 21% of local business and employs thousands of people, as well as having a substantial downstream economic impact through supply chain linkages, in turn impacting on the services and retail sectors, including small businesses.

Retailers, hospitality and other small businesses often simply don’t have the resources to install generators and other alternative energy solutions, and are incurring substantial losses of products, perishable goods, and feet through the door.

For the large manufacturers, constant stop-start of processes and equipment not designed for this is not only causing reduced production and lost business, but also increased scrap and waste and increased breakdowns in machinery as well as loss of exports.

The impact of load shedding has a massive ripple effect through all levels and types of businesses.

The chamber started a renewable energy cluster last year, which has attracted the participation of some of Nelson Mandela Bay’s biggest energy users, representing approximately 20% of the metro’s electricity usage.

This cluster is working on potentially bringing 100 MW onto the local grid by 2025.  However, there are currently no policies that regulate that new capacity brought on through the grid will benefit the load shedding stages of the organisations funding such capacity.

It is important that more clarity is provided on how additional power generated through IPPs and other interventions feed into the national grid, can be harnessed in order to contribute towards the reduction of load shedding at a local level.

With constant load shedding having become the new norm, we must strengthen collaborative efforts between government, municipalities and Eskom, and the private sector to contain the impact of load shedding and protect our economy and jobs.

* Denise van Huyssteen is CEO of the Nelson Mandela Bay Business Chamber. This piece has been adapted from a media statement sent out by the chamber.