By Professor Owen Skae, Associate Professor and Director of Rhodes Business School
Governance and sustainability leader, Mervyn King, often makes reference to this issue of taking charge, using an orchestra as the analogy for government and business. The conductor, who in business or government is the head of the company or country, sets the tone of the orchestra at the top, assisted by their senior teams. The tune of the orchestra is the responsibility of middle management and the beat is up to the junior management and foundation level staff.
It’s a perfect metaphor for our ongoing trials with Eskom where the absence of taking charge of the responsibility to manage South Africa’s power supply, from President Zuma down, is creating cacophony in the orchestra and undermining the house that Jack built.
The effect of Eskom on the country is detrimental in the extreme and it needs to be addressed as a dire emergency, not only by the CEO of Eskom, but also, most critically, by our President and his top team.
To tangibly illustrate this, let me share a few firsthand cases with you from three people at the coalface of business in South Africa. Two are mid-size farmers and one has a mid-size brick-making company.
I must emphasis that these are South African entrepreneurs who want to succeed and contribute to the growth and development of the country. They are worlds apart from the internet trolls who knock everything for the sake of it and have nothing good to say about South Africa. Neither are they amongst the ‘blame and praise brigade’: who either blame the past for all current ails or who praise the past as if it was some model of perfect functionality, which it was not.
The brick-making company’s CEO explains that he is losing 5-6 hours in production every week. He says this is translating into an 8% loss on production, and that stage-two load shedding could increase this loss to 10% of turnover this year
The knock-on effect is huge for him in terms of loss in productivity, significantly increased overtime costs and diesel costs to power up the brickworks following each blackout. This not only directly affects his ability to run a profitable business, it also directly affects the rural schools in the Eastern Cape that he is contracted to supply with bricks. And, of course, there are the lower taxes that the government can look forward to receiving.
It doesn’t end here. Exacerbating the problem is the unreliability of the load shedding schedules. The CEO explains that if Eskom kept to its schedules he could at least plan ahead and rearrange shifts, but the schedules keep shifting.
The result is that he is spending all his time on operational crises instead of focusing on his role as the strategic thinker of the business. This is impacting on the growth of the business, on job creation and on staff morale. The opportunity cost of this, which can be measured quite accurately in terms of percentages lost, is proving to be extremely onerous.
We now meet the two farmers who farm 300kms from each other, both of whose mixed farming agri businesses (livestock, maize and lucerne) were growing well, with an associated increase in income and jobs.
One of the farmers is involved in a bona fide Broad-Based Black Economic Empowerment business, with hands on black ownership and in-depth knowledge transfer and growth – it’s a great model for transformation.
Last year, both farmers decided to take their businesses to the next level by investing in costly irrigation technology to extend the number of lands they have under irrigation. To achieve this they need Eskom to supply the requisite electricity and they had to pay an up-front deposit of tens of thousands of rands to Eskom. Eskom, in response, simply needs to connect the electricity, as the Eskom infrastructure is already there.
Expecting the switch on date to be fairly immediate, they were in for a costly let down. Eskom told both of them that it could not give them a definite switch on date, other than that it would be in the next 18 to 24 months. One of the farmers has since connected a converted diesel-driven tractor to the system as a short-term solution, but it is not sustainable and it is costing him heavily in diesel.
These are but three examples of how production and growth are being compromised and how the lag effect of Eskom’s challenges is resulting in businesses producing and selling less. All the while, the national development plan’s implementation and promised benefits is receding further and further away.
The government and Eskom seem to need reminding that they are responsible for providing electricity. Eskom is a state-owned enterprise and it does not help to blame the past or the previous string of CEOs. The government needs to leave no stone unturned in getting this critical utility functioning properly. Time is not on our side: not for our electricity supply, our water supply or our road infrastructure … if these services are not sorted out we won’t just slip down the competitiveness rankings, we are staring into an economic abyss.
Eskom and all the relevant high-level energy heads in government need to recognise that they have to get the private sector involved. The government simply cannot do it alone.
They also have to acknowledge that South Africa is grossly underinvested in renewable energy, and that it needs to significantly boost this sector to unlock as much energy as possible within a few years.
It is not going to solve the problem immediately, but if we have embrace sustainable technological innovations that are proven and available, a lot can be done in this regard. Best of all it will get small businesses involved and think of the job opportunities that will come from this.
The Presidency and the government has to show itself to be proactively addressing these priorities to restore confidence in the nation. As Mervyn King says the conductor needs to conduct and the musicians need to be in tune for the desired beat to be heard.
When this happens, the tone will echo throughout South Africa and the rest of the world. When this happens we will know that our economy is on track and our ability to be competitive is on the rise.
When this happens, the brick-maker will make more bricks than he’s dreamed of, the farmers will irrigate their new lands, more jobs will be created, more taxes will be paid, and the house that Jack built will finally be free of cats, rats and old cheese.
This article was written by Professor Owen Skae, President of the South African Business Schools Association (SABSA) and the Director of Rhodes Business School.
Professor Skae writes in his individual capacity and hence the views expressed are not necessarily those of SABSA or the member schools. For more information on SABSA and its members, visit its website www.sabsa.co.za
This article appeared in Leadership, Edition 357, March, 2015. It is reproduced with their permission.