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South Africa’s continuously constrained power supply has dampened the 2015 outlook for more than half of the nation’s CEOs, who feel the lack of energy capacity would hit the bottom lines of businesses in the coming year.
Despite an uptick in the confidence of South African CEOs that economic conditions were improving, the ongoing power supply crisis and its subsequent restraint on economic growth were weighing on confidence.
The Merchantec CEO Confidence Index registered an overall quarter-on-quarter rise in confidence of 3.9% from 50.1 points in the third quarter of 2014 to 52.1 points in the fourth quarter.
The CEOs surveyed across all sectors indicated an increase in confidence in South Africa’s current economic conditions with a 16% hike in the fourth quarter to 44.5, compared with the 38.3 points recorded in the preceding quarter.
However, 58% of the surveyed CEOs felt that State-owned power utility Eskom’s shortage of electricity capacity would have a material effect on their business in 2015.
“The remaining 42% are either benefiting from the business opportunity created by Eskom’s lack of capacity or are largely affected through the change in consumers’ purchasing patterns due to power outages,” the report stated.
The basic resources and industrial sectors were hardest hit by the power outages, while other sectors, such as consumer goods, consumer services, technology and financial, had experienced rising costs resulting from load shedding, which required the companies to acquire, run and maintain generators, while absorbing indirect costs of lost work time and disruptions in the flow of day to day work.
“Many companies have made significant investments to ensure that they are self-sufficient and are feeling the rising cost pressures,” Merchantec noted.
Confidence of CEOs relating to their own industry growth expectations recorded a decrease of 2.5% from 48.6 points in the third quarter to 47.4 points in the fourth quarter.
The basic materials sector recorded the greatest decrease in confidence for the fourth quarter, dropping 8.5% to 49.3 points.
“The drop in sentiment was primarily driven by a 15.4% decrease in confidence relating to their industry growth expectation, a 12.7% decrease in confidence relating to their company growth expectations and a 10.9% decrease in confidence relating to their planned level of investment in company business activities.”
The consumer services sector confidence increased by 7.8%, from a third-quarter score of 49.4, to 53.2 points in the quarter under review.