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Power crisis dents confidence among SA CEOs

Power crisis dents confidence among SA CEOs

Photo by Duane Daws

10th June 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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With the ongoing power crisis, South African CEOs are losing confidence in their ability to secure debt or equity capital, noting that investors are becoming increasingly cautious when considering South Africa as an investment opportunity.

Advisory firm Merchantec Capital’s CEO Confidence Index, which collated responses from over 1 000 top CEOs, primarily from the listed environment, recorded that many CEOs believed the general public were not getting the “full story” behind the national power crisis and the true state of the power stations and their level of deterioration.

“The ongoing power crisis is a major contributor to the fairly grim outlook of CEOs in South Africa,” the survey stated, adding that 82% of CEOs believed load-shedding would continue for at least another two years.

The lack of information, transparency and government planning, together with the irregularity of power outages made it increasingly difficult for CEOs to plan for the long term, the survey noted.

The index saw a significant decrease from a positive score of 51.4 points in the first quarter to 45.4 points – below the neutral 50-point level – in the second quarter of the year.

Sixty-three per cent of CEOs had already invested in measures to mitigate the effects of load-shedding, with the majority having acquired generators or alternative energy sources such as solar and gas.

Most of the first movers who invested in back-up power sources in 2008 could support their full operations when load-shedding occurred, as they monitored and kept up with their ever-changing power needs over the years.

However, first movers were now facing another significant investment as their back-up power systems were starting to deteriorate and required upgrading.

Numerous other companies had invested enough to keep core admin processes running during load-shedding but reported to be suffering various negative effects.

The power crisis was imposing significant costs on companies in South Africa in the form of productivity losses, the cost of idle time, as well as the cost of restart time, with CEOs mentioning that employees “switch off mentally” when load-shedding occurs, further decreasing productivity, even when power supply was restored.

Many CEOs were reviewing their company’s plans as regularly as every quarter. The 37% of CEOs who had not yet invested in mitigating the effects of load-shedding, could not afford to do so, or were discouraged from investing further in the country, given the current state of affairs.

CEOs confidence in securing debt or equity had also dropped from 49.7 points in the first quarter of the year to 45.1 points in the second quarter.

Confidence in the basic materials sector was down 9.4%, while the consumer goods sector recorded a 10.5% decrease. Confidence in the consumer services sector was down 3.8%, in the financials sector was down 15.6%, the industrials sector 6% and the technology sector 9.2%.

CEO confidence relating to the current economic conditions, compared with six months ago, dropped by 20.8%, from an already negative score of 40.7 points to 32.3 points, with the largest decrease demonstrated by CEOs in the basic resources sector.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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