SMEs see improving opportunities in 2017
ESKOM’S refusal to sign power purchase agreements was creating uncertainty for foreign investors who wanted to put their money into the country’s renewable energy infrastructure, according to UK-based financial risk companies Centre for Economic and Business Research and JC Rathbone Associates (JCRA).
The two firms last week released a white paper that looked into renewable energy in sub-Saharan Africa, with emphasis on South Africa.
Lionel Kruger, the director for sub-Saharan Africa at JCRA, said the country’s Renewable Energy Independent Power Producer Procurement Programme (Reippp) had attracted R193 billion of private money so far, but this was at risk of dissipating.
“The Reippp and various other government measures have been a fantastic success and South African renewable energy infrastructure is still an attractive prospect for foreign investors. However, the longer Eskom stalls the less appealing and more risky those opportunities become,” Kruger said.
Chris Yelland, an independent energy analyst, said the delay in signing the agreement already has had a negative effect on the companies that had invested in the sector and meant steps to diversify from Eskom as a monopoly were stymied.
Negative effect
“Eskom argues that continuing with the renewable energy programme has a negative effect on it, so we have to look at the balance of interests in terms of the impact on the economy and foreign investment,” Yelland said.
Khulu Phasiwe, spokesperson for Eskom, said the company was not against funding renewable energy, but only projects that charged 62 cents per hour as going above that borders on infringing the Public Finance Management Act. “Since the 2013 load shedding problems, we had to take a position that ensures the sustainability of Eskom. We, therefore, cannot pretend as if our power grid had not stabilised since then. Some of the renewable energy projects have become expensive as Eskom has enough capacity to deliver the energy needs of the country,” Phasiwe said.
Earlier this year, Eskom said while it acknowledged the role played by the renewable energy sector in the reduction of load shedding, it had also resulted in a net loss of R9 billion to the South African economy last year.
Two firms last week released a white paper that looked into renewable energy in subSaharan Africa.
The company said for the first six months of 2015, it had purchased 2.0 Terawatt hours of wind and solar PV.
However, there has been much disconnect by other stakeholders about the methodology Eskom relied on to come to the net loss figure.
The council for Scientific and Industrial Research had recently come with a methodology quantifying the net benefits of renewable energy.
It calculates the benefits of reduced load shedding, as well as cost savings to Eskom. These benefits are the offset against the total traffic paid to the renewable independent power producers, the results of this are either benefit or loss.
Brenda Martin, the chairperson of the South African Renewable Energy Council, said the country needed to look at which energy additions would provide the least incremental increases.
“It is crucial that Eskom sign outstanding PPAs (privateagreements) in order to sustain the policy momentum of Reippp, as it will ensure that the declining price path and related value chain effects can be sustained in the national interest,” Martin said. economic FORTY- SEVEN percent of South African small and medium enterprise (SME) owners surveyed said they had hired new employees in the last year, according to Ben Bierman, the managing director of Business Partners.
He said 77 percent of them surveyed in the fourth quarter 2016 Business Partners SME index believed that this year would yield greater growth for their businesses than last year.
Bierman said last year, the private sector, and particularly the SME sector, experienced how political uncertainty and noise could negatively impact an already struggling economy.
“Political uncertainty, however, stabilised somewhat towards the end of 2016 and the country narrowly escaped a ratings downgrade. This, coupled with various positive economic prospects in the current environment, such as good rainfall and improved commodity prices, has improved SMEs ‘confidence for business growth’ in the year ahead.”
Business growth
He said the survey showed an average confidence level of 59 percent that the South African economy would be conducive for business growth in the next 12 months. and reportedly losing R500 billion in a couple of days.
Bierman said that while local politics would always be a challenge given its inherent risk to the broader economy, especially with the ratings downgrade risk hanging over the country and the murmurings of a cabinet reshuffle, potentially threatening the rand.
“While these confidence levels remain below 50 percent, the perception is that the government has over the last 12 to 18 months taken necessary measures to address the classic barriers for business formation and growth, namely access to funding, restrictive labour laws and red tape, and that SMEs are starting to see the impact of these changes, and in turn, feel more confident.”
He said in the current tough economic climate, an environment where SMEs could thrive needs to be created as this is the most effective vehicle to stimulate economic growth and job creation.
Bierman said the index showed that 47 percent of SMEs in last year’s fourth quarter reported that they hired new employees.
He said the latest job statistics (Statstics SA’s quarterly labour force survey – third quarter 2016), showed that 27.1 percent of South Africans are unemployed, the highest in 13 years and more discouragingly, 38.2 percent between the ages of 15 and 24 are not employed.
“If we can continually improve the entrepreneurial eco-system to be more conductive for business growth, supported by an improving economic environment, this percentage can only improve.”
Looking to the year ahead, Bierman said that SME funding needed to be a priority and encouraged SME financiers to adopt a more positive outlook towards South Africa’s future and consider taking more calculated risks.
Political uncertainty stabilised somewhat towards the end of 2016 and the country narrowly escaped a ratings downgrade.
“SMEs largely reflect what is happening in a broader economy. When confidence levels improve, this will positively impact on economic growth, leading to increased economic traction and business’s ability to create employment.
“This upward growth trend then further allows SMEs to do better. As long as we have this multiplier effect in action, SMEs should have a better 2017.”
Meanwhile, Anton van Heerden, a managing director and executive vice-president for Africa and Middle East at Sage, an integrated accounting, payroll and payment systems firm, said 54 percent of South African business owners felt confident about their business prospects, according to the company’s research.
Van Heerden said following the recent World Economic Forum in Davos, economic inequality was once again on the agenda for the world’s leaders.