Power Outages Burn Up Profits of South Africa Paint Manufacturers

South Africa is dealing with a major energy crisis as the power utility, Eskom, is implementing power outages, popularly referred to as load shedding, to avert total collapse of the country’s power grid.

This rationing of electricity supply has created an adverse impact on the manufacturing sector in South Africa, including losses reported by the country’s paint and coatings industry.

Load shedding has become so chronic that the South African Reserve Bank had to downgrade the country’s economic growth in January from 1% to 0.3% for 2023. The country’s finance minister, Enoch Godongwana, said earlier this year South Africa’s economy is “facing significant risks and uncertainty is on the rise.”

In fact, a recent report by the U.S. Department of Agriculture, said the constraint in electricity supply increases overall output price of most goods and services.

The report said the price of output and cost of business is higher as compared to international counterparts, hence eroding the level of competitiveness for various South African industries.

Elsewhere, Statistics South Africa, the national statistical service of South Africa, said because of load shedding the manufacturing industry decreased by 0.9% in the fourth quarter, contributing -0.1 of a percentage point to economic growth.

Five of the ten manufacturing divisions reported negative growth rates in the fourth quarter with the basic iron and steel, non-ferrous metal products, metal products and machinery division, considered key consumers of paint and coatings products, making “a significant contribution to the contraction in this industry.”

With more than 200 days of power outages in 2022, the load shedding has increased to average of 22 days a month in 2023, and the South Africa Paint Manufacturers Association (SAPMA), a trade association representing 90% of paint manufacturers, raw material and services suppliers, paint retailers and painting contractors, is concerned about the effects of electricity shortages on its members.

“The South African coatings sector are being severely affected by load shedding with massive, unexpected burdens heaped on already high production costs,” said Tara Benn, executive director of SAPMA.

“In addition to planned load shedding, sudden outages or related substation failures are major problems,” she said.

“If a production batch is spoiled by sudden loss of electricity, the results can be catastrophic and there are now increasing cases of end-products having to be dumped or regarded as sub-standard because of load shedding occurring without prior notice,” added Benn.

SAPMA, Brenn said, is alarmed about reports that there are now new clauses in insurance “which would exempt the insurers from damages to goods resulting from issues related to the power grid.”

“SAPMA members have had to add diesel costs, provision of inverters to home-based sales staff, and additional costs of back-up systems for their servers to running expenses,” she said.

SAPMA members, Benn explained, are not likely to pass the costs on to customers at a time the South African economy is depressed with the “costs of raw materials and other expenses having already escalated due to the Rand’s depreciation against all major currencies.”

Benn said SAPMA members’ customers who cannot afford generators just send staff home if they know that their schedule is in the afternoon or start later if in the morning, resulting in short pay for employees.

“We are also seeing slower arrival of goods from warehouses at ports which is seriously delaying availability of goods,” Benn added.

A statement by SAPMA said load shedding is also affecting ancillary industries with customers responsible for the supplying of coatings for the food and beverage industry, as well as drum coatings, to name just a few, experiencing escalating shortages.

Some of the paint and coatings manufacturers, Benn said, have placed their staff on short time, thereby reducing their employees’ earning.

“Work shifts have been affected and, because of such adjustments, night shifts are now becoming the norm in a company previously only doing day shifts. This is placing a negative impact on staff’s personal lives in terms of transport for school children and similar domestic challenges,” she added.

Moreover, Benn said several SAPMA members’ hardware stores are being affected “by load shedding consequences such as late arrival of stocks.”

“It can take delivery vehicles hours longer to reach their destination when traffic lights are not working during load shedding,” she added.

South Africa is just recovering from the impact of COVID-19 that includes significant fall in demand for paint and coatings as the building and construction industry took a beating from the pandemic’s outbreak.

However, in spite of the constraints load shedding is posing to growth of South Africa’s paint and coatings market, the government recently unveiled an infrastructure development plan that is likely to trigger increased consumption of the protective and decorative products in the short to medium term.

For example, South Africa’s public works sector is projected to spend an estimated ZAR903 billion ($50 billion) development of infrastructure in the medium-term.

“The largest portion of this, around ZAR448 billion ($27 billion) will be spent by state owned companies, public entities and through public-private partnerships,” said Godongwana.

He said the spending plans are mostly for strategic projects transport and logistics that will spend an estimated ZAR 351.1 billion ($19.6 billion), including for SANRAL to improve the road infrastructure network.