HOW SA MANUFACTURERS ARE AFFECTED BY LOAD SHEDDING

Supplied by Moneyweb

The following is an interview conducted by Moneyweb journalist Ciaran Ryan with Amith Singh national manager for manufacturing at Nedbank.

CIARAN RYAN: After the disruption to business as a result of the Covid lockdowns, South African manufacturing bounced back to life in 2021 and the early part of 2022, only to see this magnificent recovery derailed by load shedding.

The Reserve Bank estimates that load shedding is costing the economy about R900 million a day, while Statistics SA reports a 0.8% increase in unemployment in the fourth quarter of 2022, and that’s a clear consequence of load shedding.

The manufacturing sector’s output grew a rather astonishing 17% in the first half of 2021, but then started to slow down in the second half of last year, owing to load shedding. Now, can you explain what sectors drove the growth that occurred in the first half of 2022, and how you think load shedding is going to impact manufacturing this year, in 2023?

AMITH SINGH: It’s important to understand that a lot of the growth we’ve seen in the first quarter has come from the previous year, and those sub-sectors that have contributed massively to that have been the iron and steel production which accounted for about 9.5%, food and [its] production around about 7%.

But the golden child of manufacturing has been the automotive sector, with just under the 24% mark, where we’ve seen quite a bit of growth. It goes without saying, with the migration from internal combustion vehicles to electronic vehicles, we would foresee that growth to be maintained for years to come.

If we have a look at how load shedding is impacting manufacturing for 2023 and beyond, it’s unfortunately a terrible story, a very sad story.

Typically when you think about a manufacturing plant, one has to think about the advanced machinery that goes into that particular plant. The downtime of that machinery and especially with Stage 4 load shedding and above – where you have up to 12 hours a day without electricity – that prevents machines from being operationally effective, and the up times and down times of those machines result in a loss of production.

There are reputational risks that come across to those particular manufacturing industries and businesses in that period, and ultimately a lack of confidence in South Africa and its ability to produce effectively and efficiently.

CIARAN RYAN: You’ve obviously got a bird’s eye view of what’s going on in the sector now. From where you sit, which areas in manufacturing have been hardest hit by load shedding?

AMITH SINGH: I guess no sector has been unscathed by it, and part of the reason for this is we have undergone the Fourth Industrial Revolution. There’s a lot of adoption of advanced machinery. We’ve seen this happening in the Covid period where people have adopted a lot of advanced machinery. AI [artificial intelligence] has improved their production and costs.

A lot of this has been done with machines, with technology – and unfortunately with the lack of electricity supply, these machines and these technologies are unable to operate.

But if we were to tie it down to sectors that were the most impacted, it’s typically the sub-sectors that are utilising machinery and electricity the most. If we boil them down, there’s typically our cement, iron and steel production, paper and chemical production, and last but definitely not least, the automotive sector that has been severely impacted by the current [waves] of load shedding.

CIARAN RYAN: It does seem like pretty much all businesses, anybody you talk to, any entrepreneur, has got to find some solution to load shedding. That’s pretty much the only subject we’re talking about in South Africa at the moment.

Describe some of the innovative solutions that have been implemented by the manufacturing sector to help decrease this devastating impact of load shedding. We are seeing a lot of these rooftop solar panels and generators – you hear [of] them all over the place. But is there some sort of innovation that’s going on around this?

AMITH SINGH: I suppose there has been. The generators are now referred to as the ‘South African drum’ because we tend to hear them all over the show. But in many instances for manufacturing plants, quite often the solar panels, those alternative energy solutions, don’t necessarily prove to be the ultimate solution, as a result of not having sufficient roof space, ground space and the high amount of electricity that is consumed by these particular plants.

So there are a few consumers and customers and manufacturers out there who are turning to wind.

Again, if you have a look more at the agricultural sector, not necessarily manufacturing, we have recently seen a Nedbank client build a floating solar farm on a lake, owing to [inadequate roof space], where the land space has been turned to water, and utilising water on his farm to be more creative.

Now unfortunately within the manufacturing space it’s not something we can necessarily do; we don’t deal with dams and lakes. But businesses have tried to go the alternate route in terms of solar, in terms of making the best use of wind. But it’s more an internal change, a change in the operating hours.

We’ve seen a lot of businesses out there changing what they offer to market.

So there’s a bigger reliance on diversification of their offering and actually owning the value chain, reducing costs and [implementing] better cash flow measures.

There’s been a lot of internal changes to deal with what we are seeing now. Unfortunately, the silver bullet in this case is not necessarily just solar panels, because as I’ve mentioned in many instances there’s just not sufficient space for solar panels and alternate energy to [make up for what they require from Eskom] or the grid.

CIARAN RYAN: It’s interesting that you mentioned that. Of course, companies are rescheduling their operations and their manufacturing around the load shedding schedule. That’s a pretty obvious one. I also quite like [that idea] – it’s the first time I’ve ever heard of somebody putting solar panels on a pond because they didn’t have enough space on the roof. I know that Nedbank is doing a lot of things to assist the manufacturing sector with load shedding. Just run us through some of the innovations that you have made as a bank to help your customers get through this period.

AMITH SINGH: So again, as you mentioned earlier, it’s probably the most topical thing that’s happening in any business out there – and again, manufacturing is no different.

I think prior to getting into any solutions, one has got to understand a lot of the nuances with the particular business.

In the example I used about some businesses not necessarily having adequate rooftop space, parking space or space for solar panels, etc, it’s important to understand the nuances of the particular business and the particular sector and also how the business operates.

It’s also important to provide sound advice when it comes to alternative energy and what solutions we can provide in that regard.

Great responsibility rests upon us as banks to leverage the knowledge we have of what has worked and what hasn’t worked, with our knowledge of other clients’ [circumstances] in similar spaces and similar sub-sectors.

And I think that advice goes a long way in ensuring a certain level of comfort for businesses out there that are making these purchases or investments into alternative energy.

Again, funding support is critical. Important for us is that we are dealing with credible suppliers and installers of this particular equipment when we are looking at alternative energy.

I’m sure everyone is well aware that there has been a rise in companies and firms providing alternative energy solutions. So it’s important for us to ensure that our clients and business out there are secured by having the right supplier, right equipment, right installation, and that it actually meets the need of that particular client in the business at hand.

And last but not least, I think open channels of communication can never be taken for granted. It’s important for us to stay and continue to stay close to our clients, understanding what’s going on in their businesses, and ensure that we as banks are completely available and accessible to our clients to navigate these difficult times together with them. CIARAN RYAN: Amith Singh, we are going to leave it there