Business Day (Johannesburg)

24 January 2008

South Africa: Power Cuts Hit Small Man Hardest

Johannesburg — SMALL and medium-sized businesses (SMMEs) have been hit hardest by this month's power cuts, with dozens forced to shut and more closures expected if the crisis continues, says black business umbrella body, the National African Federated Chamber of Commerce and Industry (Nafcoc).

Nafcoc president Buhle Mthethwa says the body, which has 300000 members, will approach the government soon with requests for compensation for small enterprises which had lost perishable goods during the blackouts and can not afford to buy generators to protect their remaining stock.

"We are all concerned about the effect of this on small businesses," she said during a presentation on the electricity crisis by Eskom CE Jacob Maroga to Business Unity SA (Busa ).

"Lower sales and turnover lead to lower profits and less finance available for salaries -- this results in job losses or even closures and will ultimately impact on economic growth.

"Dozens" of Nafcoc's members, who represent black, coloured or Indian enterprises, are forced out of business by the chronic power outages, which add to problems they already face from rising interest rates and restricted access to credit.

"We've set up a committee to find solutions to submit to the government. These power outages have added to funding problems and we will engage government on how they can be (compensated) in terms of their losses.

"If our small enterprises are affected in this way, we will not achieve what we want in job creation or poverty alleviation," Mthethwa says.

Growth in the economy has steadily accelerated since democracy in 1994 and the government wants to boost the pace to a sustainable annual rate of 6% from 5,4% in 2006 -- a 25-year peak. It also aims to halve unemployment and poverty by 2014.

But now there is mounting concern that power shortages will put more constraints on a growth rate hampered by a global slowdown as well as higher interest rates, which the Reserve Bank has raised by four percentage points in the past 18 months in a futile bid to reduce soaring inflation.

Growth in the retail sector, the economy's third-biggest, slowed to a virtual halt last November, in a trend blamed on tighter credit conditions, which have curbed consumer demand, the economy's main engine of growth.

Official data shows company closures rose last year for the first time since 2003, with liquidations up 6,7% in the first 11 months versus the same period in 2006.

Credit Guarantee economist Luke Doig thinks the December data will show liquidations rose 8% to 3268 last year, with the pace quickening to a rise of 10% this year.

"The impact of the power cuts undoubtedly will lead to an escalation in liquidations and debt insolvencies. It will hit SMME s particularly hard as they don't have much resources," he says.

Nafcoc operations manager Tumi Rubusane says the body has been "inundated" with hundreds of calls from members experiencing difficulties from power cuts.

"Half of our businesses are so small they are not even registered for tax -- they don't have huge cash reserves and they can't afford to buy generators."

The motor industry has suffered the most from higher interest rates, with new vehicle sales falling 5,2% last year -- the first annual decline since 2002.

Jeff Osborne, CEO of the Retail Motor Industry Organisation, says power shortages were also hitting used car dealers, petrol stations, motor mechanics and panel beaters -- which were mainly SMME s.

"We have seen 13 dealers close in the last two or three months and we suspect there is more to come -- this power shortage is the last thing we need," he told the Busa meeting.

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