The convergence of a number of global issues including the COVID-19 pandemic and the war in Ukraine has had a devastating impact on economies around the world. South Africa, as with many other countries across the developing and developed world, has had to focus on recovery, while also dealing with global market volatility.
It is a time of crisis, and no country in the world has been immune to the numerous crises. In fact, South Africa had already experienced two consecutive quarters of recession before the pandemic reached our shores. Since then, market conditions have worsened, with companies around the world facing cost-cutting measures and restructuring in an attempt to maintain their competitiveness and viability.
Cost cutting has become a prevailing strategy for companies across various sectors in South Africa. The impact on supply chains within the global economy, particularly in Europe, has had a trickle down effect on South Africa, impacting on the import and export of goods, affecting everything from prices to profitability and, ultimately, sustainability of companies.
With the rising input costs, global market volatility, and local economic uncertainties, businesses are compelled to streamline their operations to maintain profitability. Cost reduction measures include scaling back on discretionary spending, renegotiating supplier contracts, and optimising supply chain efficiencies. While these steps are necessary to secure short-term stability, they can have a lasting impact on companies’ growth prospects.
These effects can already be seen in supermarkets and stores around the world, with significant increases in everything from essential food items such as bread and milk, to specialised and luxury goods. The average cost of the Household Food Basket increased from R4996,20 in March 2023 to R5023,95 in April, signalling a 13.1% increase.
The global turndown in the economy has also resulted in some unique forms of cost-cutting and retrenchments. Traditionally companies would restructure as a means of cost-saving and cost-cutting. However, following the tech boom during and immediately after the pandemic, many of the largest tech companies in the world are now facing inflated staff numbers, which are no longer sustainable. It has created a new and unique reason for companies such as Meta, Amazon, X and Alphabet to retrench employees who were employed during the pandemic.
Looking closer to home, the most obvious impact on every person and every business is loadshedding. The ongoing energy crisis and the talks of higher levels of loadshedding being implemented may force employers to begin to look at how and if they continue business. After its share price dropped nearly 10% earlier this year, retailer Pick n Pay shared with the media that it had spent nearly R350-million on diesel over a 10-month period.
Companies have never, historically, had to factor into the cost of doing business in South Africa, reliable power supply. The more this becomes a reality for businesses who cannot sustain the losses incurred due to loadshedding and the less energy which is supplied by the state, the higher the risk becomes that large-scale retrenchments will be embarked upon.
Worryingly for the South Africa economy, these risks are not limited to small and medium-sized businesses but in large-scale, multinational operations as well, particularly in the mining and manufacturing industries. In these industries, the cost of generating their own electricity will bear a significantly higher impact on the viability of such businesses.
Looking at the frightening impact of these crises on employment and job creation, it is even more worrying to look at the long-term statistics around unemployment in South Africa and what it could mean for the future of our youth. Over the last 10 years, the number of people looking for work nearly doubled from 4.7-million people in 2012 to 7.8-million in 2022. This does not include anyone who is no longer seeking employment and therefore the true unemployment rate is significantly larger.
Besides the depressing reality of having millions of people sitting at home, these statistics also highlight the effect of a shrinking job market. The many pressures on businesses in South Africa to keep operations going despite the electricity crisis, will have to come to a pinnacle soon, where many South Africans may unfortunately face becoming part of the already staggering number of the unemployed.
