Down time and other effects of load shedding have negative effect on the economy
The return of load shedding in recent months has had a huge impact on commercial property and business owners who are already struggling in tough economic conditions.
And with harsher and more frequent power cuts expected to come into play in future, the outlook for businesses is even bleaker.
The impact of load shedding has been “substantial” both in terms of down time for shops, factories, warehouses and offices, and the secondary negative effects such as longer travel times, staff staying away and the negative sentiment it carries, says Fundamentum Property Group chief operating officer Frank Reardon. Businesses, investors and individuals go into a “holding pattern” meaning longer decision-making time frames and deepening economic malaise.
“Energy intensive businesses such as industrial and manufacturing, that cannot fall back on emergency power supply from generators, are the worst hit. In shopping centres the smaller retailers that do not have generators are probably harder hit than the larger nationals.
“Offices are less reliant on electricity and many office continued from workers can work remotely.”
Although electricity supply appears to have stabilised, Reardon says load shedding’s return will bring “more despair, more pain, less economic growth and fewer jobs”.
Echoing this, Theresa Terblanche, divisional director for Broll Property Group, says industrial and retail properties and businesses are the most severely affected. Industrial delays affect output and delivery and this affects the availability of products on the shelves of retailers.
Terblanche adds: “Industrial businesses, particularly manufacturing, suffer longer outages than the load shedding times as some machinery needs to be shut down beforehand to avoid damages, plus it takes time to power up larger machinery.”
Load shedding also sees shoppers decreasing their visits to malls and centres.
“Retail stores cannot trade when there is load shedding. Food retailers are closed for longer periods in order for them to prep to reopen for trade. There is definitely a loss of income and extra expenses and there is higher theft as electronic security devices do not work during load shedding.
With load shedding schedules up to stage 8 recently being distributed, there are also threats of power cuts becoming more regular and for longer periods. If this materialises, the already significant impacts on commercial property owners and businesses will worsen.
Tenants will not be able to trade and hence not be able to pay for rentals and other charges such as electricity, water, sewerage and refuse removal. The inability to pay salaries will also lead to job losses and affect purchasing power, she says.
“If tenants are not off the grid and unable to continue trading through higher stages of load shedding, we will see much more business failures and increased unemployment.”
To minimise risk and loss, Terblanche says businesses should invest in generators and food outlets should switch to using gas. Landlords can also use generators in shopping centres for basic lighting, till points, and alarm systems.
Ultimately, load shedding results in product disruption which impacts direct economic growth, says John Loos, property sector strategist at FNB. Although the impact is “tough to quantify”, it is clearly there.
“Slower economic growth means slower business growth and slower growth, or even decline, in the demand for commercial space to rent. This, at a time when average commercial property vacancy rates are already on a rising trend, could further constrain landlord ‘pricing power’ and exert further downward pressure on already-slowing rental growth.”
The negative sentiment associated with load shedding also impacts on indirect economic growth.
“The fact that Eskom’s visible troubles have been around for over a decade, and with little apparent sign of improvement to date, boosts pessimism regarding the future of the South African economy,” Loos says, adding: “Weaker confidence in the economic future translates into less new business investment and expansion plans, which in turn constrain the demand for new commercial space over and above the direct negative impact of load shedding on current economic output.”
However, any sign of major Eskom reforms under its new management could be a major boost to sentiment.