With the load shedding crisis and incredibly high rates of unemployment, predictions are that South Africa’s economic performance will mirror that of last year if not worse, according to Eaton South Africa, a diversified power management company.
Godfrey Marema, the managing director of Eaton South Africa, said in an interview with “Business Report” that globally there was a lot of talk about an impending recession.
“For companies that are exporting, this is a plus because they will benefit. But for the majority of importing companies and countries, they won’t benefit, so there are difficulties ahead,” Marema said.
Last year, the South African economy grew by 1.6% amid a deepening power crisis, and 2023 started with a bang, but it appeared that the power struggles were only going to get worse.
“The power supply is quite central to the economy of our country, which is why we’re seeing a huge shift in the heavy industries which are severely impacted by load shedding. This is due to the high demand of energy to power some of this equipment and machinery,” Marema said.
“For economic growth we need to see activity on the ground – we need to see machines working, we need to see products coming out of the final assembly. If that isn’t happening, then it’s impossible to have a growing economy. Navigating this (environment) is especially difficult for small and medium-sized businesses (SMEs),“ he said.
Bigger companies were better equipped to deal with these challenges, but for SMEs, which were the drivers of South Africa’s economy, they were incredibly difficult to overcome, he said.
“Many SMEs are retrenching and some have their margins eroded. For the SMEs to continue doing business, additional capex is required to supplement current power shortages, for example buying generators, which also come with additional operational costs. With SMEs continuing to struggle, you cannot forecast solid economic growth as they are the backbone of the manufacturing economy.”
Describing last year, Marema said the onset of the Russia-Ukraine conflict had disrupted supply chain networks globally.
“As such, the most significant challenge we faced was that of supply chain constraints. Supply chain networks, particularly those on sea, are uniquely vulnerable to geopolitics.”
Supply chain disruptions had impacted the ability of local business to move and receive things like parts and products across its geographic footprint.
“Operating in South Africa, we have at least eight weeks where our goods are being transported by sea and any supply chain disturbances can extend this time, sometimes indefinitely,” Marema said.
However, Marema said Eaton South Africa managed to recover and to re-strategise to overcome these challenges, which spoke to the resilience of its supply chain and its business model, enabling it to absorb some of the difficulties the power firm faced.
“Eaton has survived these and has done well under the circumstances, but we are not immune to the challenges affecting our wider industry and the economy at large. It is these learnings from 2022 that we’re taking with us through 2023,” he said.
“Something Eaton is quite good at is ensuring we have robust models and strategies that allow us to circumvent ad hoc injections of challenges. At the moment, we are focused on ensuring we have the right stock levels, improving our forecast accuracy so we have guaranteed turnaround times.”
Marema said in the broader local industry, there was a lot happening to boost the local economy, including protecting local suppliers from imports.
Localisation
Marema, who is also the vice-chairperson of the Electrical Engineering and Allied Industries Association, said the body was currently engaging with the Executive Committee of the Steel and Engineering Industries Federation of Southern Africa, the representative of 18 independent employer associations in the metals and engineering industries, on matters that involved protecting the local economy and localisation.
Within that committee, they were working with entities such as the South African Bureau of Standards and were looking at how they, together with the Department of Trade, Industry and Competition, could help fast-track the process of growing the capability of local suppliers.
“This can have a really positive impact on the economy. We are also pushing for transformation among our suppliers. Eaton is also committed to boosting the local economy through training schemes that particularly target unemployed youth,” Marema said.
“We believe there is so much untapped potential there and want to be a part of unlocking that through our supplier development programmes. Our model involves looking at tier 2 and tier 3 suppliers, focusing on activities that have a direct impact on the local economy.”
BUSINESS REPORT