By: Zandile Majavu
Some small businesses feel like they have been thrown into the deep end by the government after Eskom’s 12% tariff hike was implemented this week. The increase for Eskom’s direct customers was implemented on Monday, while Eskom’s tariffs for municipalities will become effective on July 1. Ubuntunomics owner and sustainability practitioner Sibusiso Nyathi told Vutivi News that there was never a good time for tariffs to be implemented in a stagnating or declining economy. Especially when there was a high-interest environment and negative real growth caused by upper-bound inflation.
“So, it is the worst time when one also considers that household consumption was a meager 0.2% for the last quarter of 2023. “The government is standoffish when it comes to electricity price tariffs. That job is given to Nersa, who are supposed to be impartial and independent, putting the country’s best interests forward,” said Nyathi.
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He further explained that the biggest challenge for small businesses was a low demand for goods and services produced by the economy. This translated to low consumption. “A negative economic environment is worsened by high interest rates for highly indebted consumers, which also affects the country’s highly indebted consumers. We must bear in mind that South Africa’s economy is consumption-driven, making up to +65% of Gross Domestic Product,” Nyathi added.
This, in turn, affected borrowing rates, meaning expansion or investment in new product lines or machinery also suffered. “The electricity tariff hikes compound the already high administered costs (logistics, transportation, exports/imports, and fuel) in the country. This all affects the competitiveness of South African products,” Nyathi said.
The president of the African Panel Beaters and Motor Association, Sisa Mbangxa, agreed the timing was bad, especially for SMMEs in the automotive industry. “SMMEs are operating under stringent conditions where compliance on its own is very expensive, where the government does not protect the SMMEs from the monopoly, price fixing, and collusion practiced by big or established businesses on the top, and where access to the market is only set aside for the so-called businesses. The government is not protecting SMMEs from the informal and unregulated businesses mostly owned by illegal foreigners in South Africa,” Mbangxa said.
Small Business Development Institute CEO Xolani Qubeka said that in a depressed economic environment, increases in basic services were counter-productive and a recipe for disaster. It created an environment where SMMEs had to survive on smaller margins. “SMMEs are not able to accumulate surpluses like larger businesses, and unless there are subsidies designed to cushion businesses, more SMMEs are doomed to fail,” he said. “Part of the solution would be to introduce cost-effective energy solutions targeted at removing small enterprises from the national energy grid through grants and incentive schemes.”
Independent economist Dale McKinely said that the Eskom tariff hike would only cause more problems. “The fundamental problem is that Eskom is trying to recover from their mismanagement and corruption, and [is] transferring the burden to taxpayers,” he said. McKinley added that small businesses, which have smaller profit margins, were forced to pass costs onto their customers.
McKinley further said that small businesses were struggling to keep their heads above the water in terms of paying for rates and taxes and, at the same time, had to keep their customer base while competing with the pricing structures of other businesses.
