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Load shedding costing metals and engineering sector R6bn

Load shedding costing metals and engineering sector R6bn

Steel and Engineering Industries Federation of Southern Africa (SEIFSA) has urged government and State-owned power utility Eskom to bring an end to the current bout of load shedding, which, in the past three weeks, has cost the metals and engineering sector an estimated R6bn in lost revenue.

The extent of the damage to industry and the costs that arise directly from load shedding have been gravely underestimated, says the Cape Chamber of Commerce and Industry.

“This is a crisis for the country and a disaster for many industries, and people in high places need to be made aware of the real consequences of the Eskom fiasco,” said Janine Myburgh, President of the Chamber.

SEIFSA chief economist Henk Langenhoven in a statement highlighted that the metals and engineering sector’s total production for 2014 was estimated to be in the region of R320bn, with value added to the economy estimated to be R84bn.

It was further estimated that the sector produced a R26.5bn turnover in November and added about R7bn to the South African economy.

Without the constraints, taking these assumptions into account, Langenhoven said it was estimated that R6bn in output and R1.5bn in value add had been lost. This amounted to a 23% loss of production and value add for the economy.

However, the most serious potential loss was that of international markets owing to production uncertainties. Exports constituted 60% of production and imports had captured a similar share of the domestic market.

“Markets lost owing to nonperformance may never be regained as a perception has been created that these shortages will continue for years. The resumption of gross fixed investment in the sector and, therefore, faster growth was unlikely,” said Langenhoven.

SEIFSA CEO Kaizer Nyatsumba said on Monday that it was “completely unacceptable” that a country with South Africa’s level of development found itself in the midst of a load shedding crisis “right in the middle of summer.”

He added that the frequent energy supply shortages and supply security uncertainty were damaging South Africa’s international reputation as an investment destination, and the power outages, which culminated in stage-three load shedding last week, had also caused further harm to the country’s already ailing economy, which would render South Africa globally uncompetitive.

Nyatsumba highlighted the vital importance of energy supply for a thriving business environment in general and in the metals and engineering sector in particular, for which energy costs accounted for an average 8% of total intermediary input costs.

It stood too reason, therefore, that without a reliable energy supply, the sector could not expand or, ultimately, exist.

Myburgh said a survey of just one industrial area in the Cape, Parow Industria, revealed:

  • Ceramic factories may have to close their doors. Kilns take up to ten hours to reach the required temperature and any interruption in the power supply causes quality problems. Kilns have to cool down completely before they can be restarted and the loss of product, production time and the risk of further load shedding means that it is not worth carrying on until there is a secure power supply.
  • In the metal industry the situation is even worse. When furnaces lose power, the metal in them can solidify causing many thousands of rand damage as well as the loss of two day’s production time
  • The food industry has been hard hit. Ice cream and dairy factories, operating at full capacity for the season, are losing product while labour costs go up as they are forced to pay overtime. Ice cream has melted and covered factory floors
  • The baking and confectionary industries operate within very precise temperature ranges and when the power goes product is lost and equipment damaged. Losses can exceed R100,000 in stock value on a single product
  • Modern factory machines have precise shut-down procedures and when these procedures are not followed because of load shedding equipment can be damaged and controlling software corrupted
  • The pharmaceutical and cold storage industries have to operate within defined temperature ranges and power interruptions can make product unsafe

Peter Haylett, Chairman of the Chamber’s Industrial focus portfolio committee said Eskom would not be able to solve its problems in the near future and the damage caused would eat into company profits, jobs and tax revenue for the government. Industry in the Cape would be particularly hard hit as local factories would not be able to compete with rivals in Gauteng where gas from Mozambique and Sasol was available for kilns, furnaces, ovens and other process heat requirements in industry.

“Part of the answer was the rapid development of our own natural gas resources while the need to import natural gas had become urgent. We have been arguing for this for more than a decade, but our call has fallen on deaf ears and now we are paying the price,” Haylett said.  

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