Power cuts affect March business activity negatively, says PMI report

Business activity in the private sector deteriorated in March, as businesses were affected by load shedding, according to the latest IHS Markit South Africa PMI.

The PMI, which was released on Wednesday and which measures private sector business performance dropped from 50.2 in February to 48.8 in March. A figure greater than 50 indicates improvement in the sector.

The drop below 50 reflected that business conditions in the private sector deteriorated moderately at the end of the first quarter, according to the report.

"The promise shown by February's data was overturned in March, as the PMI dropped back into contraction territory. Companies squarely lay the blame at frequent power cuts due to load shedding at Eskom, leading to lower activity for those affected," said David Owen, economist at IHS Markit.

In February business activity briefly stabilised but this was undone in March when output levels fell at their quickest pace in four months, the report read.

Eskom implemented Stage 2 load shedding in March due to plant failures but this quickly escalated to Stage 4 load shedding following a cyclone in Mozambique which affected power imports from the Cahora Bassa dam.

Eskom managed to suspend load shedding after restoring one of the power lines from Mozambique, and stabilising the grid, Fin24 reported previously.

"Firms that saw output decline often linked this to load shedding from Eskom… The outages led to weaker conditions across the private sector.

"New orders dropped at a sharper rate at the end of the first quarter. Demand was curtailed by load shedding and poor economic conditions, according to panelists," the report read.

Employment levels also declined for the first time in six months, as the lack of business reduced work loads and led to job losses, the report indicated.

The fall in demand due to power cuts have also led to a negative outlook by some companies. "Business expectations dimmed in March, falling to the weakest in six months," according to the report.

"With media reports suggesting that load shedding may intensify rather than calm down, and with elections looming, businesses are likely to face a tough time ahead," Owen added.

Eskom's board and Public Enterprise Minister Pravin Gordhan will hold a briefing at 14:00 on Wednesday to give an update on the electricity system.

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