NOMPU SIZIBA: Load shedding has become a daily reality in South Africa due to Eskom’s operational woes. In 2008 consistent load shedding was responsible for limiting economic growth at that time. And, while we can be pleased about coming out of recession in the third quarter of this year, there also needs to be a very real concern about what the ongoing load shedding situation will mean at the micro- and the macroeconomic level.
Well, to get a sense of how the recent load shedding is affecting businesses, I’m joined on the line by Dane Viljoen, chief commercial officer of New Way Power, which deals in the manufacture and sale of generators and Stefan Schonfeldt from Productive Systems, which manufactures packaging machinery and conveyor systems. Thanks very much for joining us, both of you.
Let me perhaps start with Dane around the generator business. Have you seen an uptick in demand for generators as a result of this load shedding?
DANE VILJOEN: Hi, Nompu. We’ve definitely seen an uptick, a considerable one. In fact, the past few weeks have been quite hectic.
NOMPU SIZIBA: One of the things of course we have been concerned about in the newsroom is the high fuel prices that perhaps would have been a deterrent for people. That clearly hasn’t been a deterrent – people still need their electricity.
DANE VILJOEN: Yes. I think you are 100% correct. They still need that reliable backup power source. I don’t think the renewable power [available] is sufficient enough to cater for everything, so people still need to rely on diesel-generator backup power. So, even though the fuel prices are high, I think the cost of being out of business is a lot worse.
NOMPU SIZIBA: Stefan, what sort of experience have you had? When you are running a factory and suddenly there is no power, presumably you’ve got backup systems. But tell us about the process – what happens then?
STEFAN SCHONFELDT: Hi, Nompu. For us we have backup systems. We’ve got milling machines, rolling machines, cutting machines. They are machines that use power. For us, when load shedding comes on and we are on schedule for load shedding we have to switch off those machines. Those machines don’t like being cut off from power in the middle of running on a job. So for us this is a big problem.
NOMPU SIZIBA: I know you are not a power station or anything like that, but, when the electricity comes back, is it quite simple – do you just turn on a switch and things come back on again, or is that a mission?
STEFAN SCHONFELDT: That’s also a mission, because with these machines you need to re-reference the job so that you can get the correct position to start again. It’s a whole process for us. And then the thing for us that’s more difficult this time around is with the previous load sheddings you were scheduled; at three o’clock every day you switched off when load shedding was there. Now it’s maybe three o’clock today, and it’s maybe nine o’clock in the morning the next day. You can’t organise your staff to perhaps come in later or clock off earlier and come in earlier the next morning.
NOMPU SIZIBA: And in terms of your supply chain, what impact is that having? In terms of your customers, the stuff that you are producing and the people that you have to sell on to, what sort of impact is that having? Are you having to tell people that you can’t deliver?
STEFAN SCHONFELDT: That’s another part of the problem. We make it up by rollicking overtime. It’s costing us overtime, and that’s a cost that you won’t get back. So that’s how we try and solve that problem. But with some of our projects we are running on penalty clauses and if you can’t deliver then you also pay.
NOMPU SIZIBA: Very costly indeed. Then, Dane, in terms of the generator business, we’ve been warned by Eskom and the Minister of Public Enterprises that we should expect load shedding until about the end of March or so. Are you confident that you have enough inventory should demand continue? And, if you don’t, is it difficult to get generators into the country if you have to import them?
DANE VILJOEN: Nompu, it’s a good question. We have a business model where we manufacture generators in-house; but we also have international partners from whom we import generators. So yes, obviously load shedding, when it starts, starts quite drastically, it starts quite quickly. You are never fully prepared.
But we are very confident that we house a lot if international brands. We build generators locally and then we’ve also got backup support with our international partners on complete generators.
So the answer is yes, I think we are prepared. But then again, two different business models – you have the general customer who needs a generator very quickly – a small-sized generator, 30 kVA, 60 kVA, imported, comes in. But for larger projects where the solution is a little more complex, that needs to go through a manufacturing process, a design process and all the rest of that. So there is a little longer lead time.
But yes, I’m confidently prepared.
NOMPU SIZIBA: Stefan, when it comes to the longer-term picture, looking at your power needs and so on, are you thinking about alternatives, given the hassles that we’ve had with Eskom – or is it too expensive to consider an alternative?
STEFAN SCHONFELDT: Before we look at generators we would probably want to expand on our other equipment, and expand the business that way. But looking and hearing what Eskom is saying – that the next year is going to be full of load shedding – you would have to change those plans and start seriously looking at generators and alternatives.
NOMPU SIZIBA: As you do that, obviously your costs start to rise hectically. What impact would that have on your staff – if at all? I’m speaking generally, I’m not asking you specifically.
STEFAN SCHONFELDT: Impact on the staff or impact on my customers? My pricing would obviously have to increase and that makes me uncompetitive. That’s the problem we sit with.
NOMPU SIZIBA: The reason I was asking about the staff is that if you are getting a lack of productivity because you don’t have power, what impact does that have on your staff? Does that mean that they are working fewer hours, and they get paid only for the hours that they work and so on?
STEFAN SCHONFELDT: Yes. At this stage I know that a lot of other businesses around us, when there was load shedding, had to do that. But we’ve been lucky and we’ve had to manage that and still pay the staff what’s due to them.
But if you are looking at two hours a day without power, that’s 20 to 25% of your day’s productivity that’s lost.
NOMPU SIZIBA: And Dane, in terms of your long-term planning, what are you doing in the meantime? With all the uncertainty, with the load shedding that is taking place, and you having to anticipate demand for generators, what plans are you putting in place to ensure that you are able to cater for people’s demands, if at all?
DANE VILJOEN: I think it’s a slightly complex issue, because load shedding can also go on again, and it stops overnight. But, yes, certainly from sourcing our major components from the manufacturing perspective, and then also making sure we have the backup for the complete generators that we’ve bought, we are obviously escalating that. So from a supply-chain perspective, we are just going to make sure that we have the stock to assist everyone.
NOMPU SIZIBA: And in terms of servicing the generators and things like that, I’m just thinking of the time, like you say, “when the lights are on and everything is hunky-dory for us and there is less demand for your product, how do you keep yourselves going when things are fine?
DANE VILJOEN: Look, we have a broad customer base. We’ve got some long-term loyal customers, so that keeps the business going. But what we do find is that when load shedding stops and everything goes back to normal, and the grid is sort of stable, people kind of forget about the generator; they are not prepared. So they tend not to service the generator, they don’t make sure that the generator is filled with diesel.
In the same vein I’d like to say that if someone has got power at the moment, just make sure you have diesel, that the generator has been checked, that the generator has been serviced – so, if the lights do go out, you are fine.
And for those who don’t have backup power, I think you need to start thinking of being prepared, and getting the backup.
NOMPU SIZIBA: Absolutely. So, Stefan, based on your experience, when you look at the broader economy, are you concerned that perhaps we will see economic growth affected at least for the balance of this year because of what’s been happening with load shedding?
STEFAN SCHONFELDT: Oh yes, definitely. It has been proved in previous years when we had load shedding that business suffers, and the economy suffers because of that. For us, we export a lot of equipment and some of these contracts look to do risk assessments on these companies, and they look at the economies of the countries they import the machines from; load shedding is definitely a big risk and they tick that box. So we lose business through them as well. Exports are dearly needed by this country, and that will suffer.
NOMPU SIZIBA: Well, I hope you guys are able with your strategies in place to survive this dark moment that we are experiencing. But thank you very much for giving us dome insights as to how it’s impacting on your businesses.
Read more on how load shedding is impacting the economy here.