Loadshedding hurting SA auto sector’s ability to compete globally

17th February 2023 By: Irma Venter - Creamer Media Senior Deputy Editor

Data from a survey the National Association of Automotive Component and Allied Manufacturers (Naacam) conducted in January indicates that the recent months of prolonged loadshedding have resulted in a substantial drop in monthly production and turnover among its manufacturing members.

In addition, the rolling blackouts are placing new business opportunities for auto component manufacturers at risk, while workforces are being placed on short time, vehicle assembly production lines are being stopped, and machinery is being damaged by electrical surges.

The auto sector is one of South Africa’s key industrial sectors, says Naacam executive director Renai Moothilal.

It delivered more than 4% of the country’s gross domestic product in 2022, with the component sector alone exporting a record R69.2-billion worth of goods, and employing more than 80 000 people in manufacturing jobs.
The results of Naacam’s survey indicate that most component manufacturers face loadshedding at their plants, despite the fact that some of these companies have loadshedding curtailment agreements in place with their various municipalities.

“South Africa has been encumbered with loadshedding for more than a decade; however, over the last two quarters, the prevalence and quantum of loadshedding have increased dramatically,” says Moothilal.

“Incidences of Stage 6 implementation – up to 12 hours per day of no electricity – are having a negative impact on the sector and will ultimately harm the automotive sector’s contribution to the economy in the short- and long-term.”

Moothilal says while Naacam members are taking steps to limit the impact of loadshedding, many of the solutions require new investment – money the sector simply does not have.

This is placing a strain on companies’ cash and balance sheets, already under pressure after Covid-19.

“The impact of this is a significant worsening of the global competitiveness of the South African automotive industry,” says Moothilal.

Survey respondents were spread across all major automotive hubs in South Africa.

About 73% of respondents indicated that they face loadshedding at one or more of their plants, with a further 12% noting that, while they do experience loadshedding, this is not the case at all of their plants.

The stage at which plants begin to face loadshedding varies by company and region.

The bulk of respondents (64.14%) reported being impacted on directly by loadshedding only from stages 5 to 8.

That being said, there are respondents that face electricity supply disruptions from Stage 1 onwards (14.13%), putting vehicle supply chains at a degree of risk.

A vehicle assembly process is continuous, and the customer cannot assemble 99% of a vehicle, explains Moothilal.

“This fact is especially worrisome as loadshedding appears set to move to some level of permanence this year and the next.”

Positive cases have emerged with several respondents having agreements in place with their municipalities or industrial development zones (IDZs) to limit loadshedding at their operations.

These include curtailment agreements under which companies reduce their electricity consumption under certain stages, in lieu of loadshedding.

A third of respondents have this type of agreement in place.

Naacam’s assessment of the loadshedding status of vehicle assembly plants – Naacam members’ customers – reveals that these plants are either in an area zoned for no loadshedding, or that they have curtailment agreements in place.

However, overall vehicle production is still being affected as there is no standard agreement in place for all component manufacturers.

“A complete sector approach is needed, especially at the Tier 1 supplier level, given the quantum of jobs and technology investment at risk here,” says Moothilal.

“We can’t assume that because vehicle plants are protected from loadshedding, all is good. Lose the Tier 1 component manufacturers and you lose the sector.”

Moothilal adds that 30% of survey respondents have stopped their customer lines since the fourth quarter of last year when loadshedding became prevalent once more.

The Naacam survey also indicates that the impact of loadshedding is not limited to South African shores.

Fifteen per cent of respondents have stopped their production for foreign customers since the fourth quarter of last year because of loadshedding.

“Lost production is having a significant impact on companies’ monthly production, business outlook and workforce numbers,” says Moothilal.

He says the median loss in monthly sales, owing to prolonged Stage 6 loadshedding, is between 30% and 40%.

“It is important to recognise that within large industrial sectors like the automotive sector, the downtime caused by loadshedding does not simply equate to the duration of time that the company has no electricity.

“Restarting equipment, particularly furnaces, to resume full production can be a lengthy process.

“Restarting production can, therefore, take anything from 15 minutes to 18 hours, with the median time being two hours.”

Moothilal adds that three-quarters of survey respondents reported new business opportunities to be at risk as a result of prolonged loadshedding, with 58.3% indicating that they have placed their workforce on short time, owing to production interruptions.

The constrained business environment caused by loadshedding has also meant that these companies have either begun cutting jobs or putting a hold on new hires, with up to 21% of respondents implementing one or both of these measures.

Aside from the loss of business and the subsequent impact on the workforce, 68.3% of respondents reported that the haphazard availability of electricity has resulted in damage to their equipment and machinery.

“It is worth noting that reported poor quality and reliability of the electricity supply, outside of scheduled loadshedding, have also impacted numerous operations,” says Moothilal.

He adds that respondents have been forced to adopt varied approaches to reduce the impact of loadshedding.

These include generator usage; the adoption of solar power; and having discussions with local business chambers, IDZs and municipalities to either have production areas zoned for no loadshedding, or to adopt curtailment agreements.