Investing in the dark

At the start of a new year, South African investors are once again asking tough questions about what to do with their hard-earned money. In contrast to other years, perhaps, there is little of the usual January optimism. Loadshedding is taking an economic and psychological toll, never mind all the other problems the country faces.

It is not hard to understand how loadshedding disrupts economic activity, so we don’t have to spend too much time discussing it. Electricity is a key input in any modern economy and most businesses require a reliable supply. The extent of the damage from loadshedding will differ from sector to sector and firm to firm depending on how energy-intensive it is and whether back-up sources are available. It will also depend on how severe loadshedding is from day to day. The most difficult thing to quantify is the investment that does not take place and jobs that are not created because firms lose confidence in the future. However, one benefit of fifteen years of loadshedding is that many businesses are now used to operating in this difficult environment. Unfortunately, the globally elevated diesel price means running a generator is also becoming more and more expensive.

Local businesses therefore face the twin pressures of lost trading hours and higher input costs. As an example, Shoprite noted late last year in its results that it spends R100 million per month running generators. This number is likely to be on the rise, since, as Eskom and the government have admitted that there are no quick fixes.

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