Uncertainty the biggest threat to supply chains

While South Africa’s power crisis is reportedly costing the country up to R80 billion a month, load shedding itself is not the biggest threat to the economy.

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Dr Robert Besseling, executive director of risk consultancy EXX Africa maintains that the biggest business and supply chain disruption facing South Africa today is uncertainty around power blackouts, industrial action and legislation.

‘When will load shedding end? The real disruption is not actually switching the power off, but the disingenuous information from Eskom and the Public Enterprises Ministry on the load shedding outlook in the long term,’ Besseling asserts. ‘Once the risk is known, it can be qualified and quantified and risk mitigation can be applied so that businesses can work around it.’

Besseling will be sharing his insights with delegates at the annual Sapics Conference for supply chain professionals, which takes place in Cape Town from 9 to 12 June this year. He compares the current state of electricity supply in South Africa to Brexit. ‘It is the uncertainty around the UK’s exit strategy that is the real threat and cost to business; not the fact that the UK is leaving the EU.’

The lack of clarity from government and the power utility is the real issue. Major enterprises in South Africa today have back up generation and can work around blackouts to some extent. The situation is dire for small to medium enterprises that are 100 per cent reliant on Eskom, but everyone needs clear answers to plan and mitigate the risks.

While the vague information around load shedding tops Besseling’s list of the key risks facing local business, it is closely followed by industrial action.

‘In his State of the Nation address, President Ramaphosa said that the power utility will be broken up into three, but he wasn’t clear whether this would include the partial privatisation of Eskom and whether job cuts are expected,’ he notes. ‘Rating agencies are in favour of both. The President is treading a political tightrope. He is trying to satisfy foreign investors, local businesses and rating agencies and his key electoral support base. This makes for huge uncertainty on the industrial action front.’

Regulatory risk and government’s unclear stance on issues like BEE, the revised Mining Charter and land redistribution also rank high on Besseling’s list of concerns. ‘The lack of clarity on key pieces of legislation must be on the risk agenda for South African businesses, particularly those involved in the main employment, high tax generating sectors like mining and agriculture.’

While land ownership is dominating the election debate, Besseling believes the rhetoric is unlikely to culminate in the expropriation by government of privately-owned or commercially held land around South Africa. ‘I am highly sceptical about all the rhetoric and believe it will most likely be land held by the state and traditional leadership that is redistributed.’

Supporting this view is the fact that finance minister Tito Mboweni made “no provision whatsoever” for land expropriation in the budget. There was no budget allocated to benchmarking land sales or to establishing commissions to investigate and implement the requisite policies. Even if the Constitution is amended and there is expropriation without compensation, there are still associated costs to be considered. ‘I do not see government moving on land expropriation in the immediate outlook,’ he exclaims.

Looking ahead at how these key risks could change or be resolved after the general elections in May, much depends on whether President Ramaphosa can win a decisive mandate. ‘He needs around 55 per cent to turn around the ANC’s decline, to have the mandate to govern the country, elect a cabinet of his choice and move ahead with reform. I believe that Ramaphosa has a 60 per cent chance of winning the decisive mandate he needs, but with new problems and issues unfolding almost daily, this could change,’ Besseling concludes.