The complexities of power generation in South Africa

As detailed in our recent report on the generation of electricity in South Africa, Independent power producers have become indispensable in South Africa, but one must ask whether they will help steer the country to more energy efficiency.  

In its efforts to curb rolling blackouts, Eskom resorted to immediate or short-term but inadequate solutions of open cycle gas and diesel turbines to meet the power supply shortfall. In the short-term it was beneficial in that South Africans had to deal with lower loadshedding stages than what would otherwise have taken place. But the cost of producing this electricity is high.

Managing an economy is very complex, strategic, and longer-term in nature. For a country like South Africa, with one of the most unequal societies in the world, it requires a concerted effort to achieve an increase in wealth and well-being, a viable economy that can grow based on its competitiveness, and an ability to supply goods and services at the lowest cost and the highest value-add. This would generate meaningful and contributing employment and start to uplift those at the economic fringes.

The importance of cheap reliable electricity

To uncover the fundamental building blocks to achieve a successful economy, Charlie Robertson, in his recent bestseller The Time-travelling Economist, includes not only electricity, but cheap and abundant electricity, as one of the three most fundamental underlying pre-conditions for economic growth. The graph demonstrates South Africa had abundant and cheap electricity from the 1970s up to 2006.

Germany is an example of what happens when you abruptly replace cheap and reliable electricity (when it closed its nuclear stations) with expensive alternative energy in response to the Fukushima incident in Japan. Germany’s economy, which used to be the powerhouse of Europe, is struggling and was the worst performer in 2023 as it went into recession.

The graph shows the extraordinary increase in electricity prices in South Africa since about 2007. Like Germany, this was not without consequences for the competitiveness and growth potential of the economy.

The Cost of Delay: South Africa’s Energy Sector

New investment in energy is always more expensive than the average cost of an existing fleet of generating units. South Africa was late to add new generating units and when it did it, the projects were excessively mismanaged, resulting in cost overruns, below par outputs and a resultant high cost of the electricity generated from the units.

Deregulation of the power sector was first mooted in the 1990s, but only saw some kind of implementation very recently, driven by sheer necessity in the face of the poor performance of Eskom and dire impact on the economy.

The role of independent power producers in South Africa

Independent power producers will bring an element of competition in the sector which will keep a tab on pricing. This is already evident in the solar industry, where smaller players have emerged and are making great strides.

The economy will self-regulate, with non-performing private sector producers being subjected to the standard economic process of closure or bankruptcy, and more competent producers thriving, leading to what Austrian economist Joseph Schumpeter (1883-1950) termed “creative destruction”. The private sector, unlike the state-owned enterprises, will not be saved by bailouts, where government generally throws good (taxpayer-funded) money after bad.

Independent power producers from the private sector should not be limited to wind and solar, but be allowed to bid for nuclear, gas or any economically viable project. Government needs to consider the need for baseload and reliability of supply in a multi-source energy supply mix, and phase the implementation of various sources, in line with infrastructure availability, to bring generated power to the end user. The needed 14,000km of new transmission lines will not be built in a year.

Progress for South Africa means GDP growth of more than 5%. This will not happen without electricity availability, never mind cheap electricity.

To achieve the required affordable electricity, a sound collaboration between government and independent power producers is needed, and a concerted effort by government to address the country’s complex economic environment through a strategic, competitive, and well-managed approach to the energy mix is sorely needed.

The potential of independent power producers and a rational phased implementation of a multi-source energy mix are crucial for sustainable energy generation and economic growth. The time is now.

The importance of adapting to change when taking brands to the market

Many a good brand has died a sad death due to lack of access to markets and a good understanding of how to get brands to the market.

While marketing and branding today are vastly different from how things were done in the past, characteristics and principles embedded in the tools and messaging have remained. Content, originality and endorsements are still relevant. Billboards, print, radio and TV advertising have had to cope with significant competition from digital and social media.

Current trends in the marketing space

Young people do not spend time reading a newspaper or magazine, and are watching less traditional TV channels except for reality shows and sports compared to the time they spend on social media either creating content or following others on platforms like Facebook, YouTube, Instagram and TikTok. Even within the social media platforms, there has been a shift towards the latter two at the expense of the former in the younger generation, with a whole new group of followers who engender influencers’ endorsements. These influencers earn income promoting products and services by reaching a wider audience than media channels.

A good knowledge of social media users is key to driving advertising as much as the message and slogans being carried. Long messages generally don’t work well, slogans do. They capture attention, they ease and improve recall for when a purchase is in the offing, and reduce cognitive dissonance. In the book Made to Stick, Chip and Dan Heath made that point convincingly.

The graph from the WOW report on the footwear industry in South Africa illustrates that revenue has steadily increased and is above pre-pandemic levels, reflecting the competitiveness and resilience of the industry.

The footwear industry like other sectors, has been gradually embracing digitalisation with online technologies having become essential for companies to stay competitive, streamline operations, and enhance customer experiences.

A good South African footwear story

Bathu, a South African footwear manufacturer, nailed it and did things right, setting an example that successful companies have a place in South Africa. It created identification with its slogan “Walk your journey” and combined it with a strong township South Africa association.

Bathu has a slick online presence and was able to create a niche market for its footwear, against giants like Nike and Adidas, which is not a small feat.

Conclusion

The adoption of digital technologies in the South African footwear industry has reshaped the landscape of marketing, challenging traditional methods while offering unprecedented opportunities. This is evident in how local brands connect with consumers, with Bathu being a good example. The brand navigated the digital race, leveraged social media, has a slick online presence and a resonant slogan.

The industry’s resilience, which is showcased by a steady revenue growth, emphasises the  effectiveness of marketing strategies that include digitalisation. However, the open-ended nature of digital media underscores the importance of responsible usage. As South African brands continue this digital journey, mindful integration remains key for sustained success.

This letter was first published in the Business Day

Linda Ensor’s article states that not all entities governed by the Financial Intelligence Act, which is implemented by the Financial Intelligence Centre (FIC), are complying.

A crucial component of this legislation is the obligation to “know your client”, which includes the disclosure of ultimate beneficial owners (UBO). While the Companies Amendment Bill gazetted last year obliges private companies to provide a UBO register with their annual returns to the Companies & Intellectual Property Commission (CIPC), the law states that this information can only be accessed by the FIC and the state security cluster, and not by the media or the public.

Companies are therefore obliged by law to provide information on their clients that is denied to them by a further piece of legislation, which is an obvious clash of legislation. One of the 22 reasons provided by the Financial Action Task Force for greylisting SA is the lack of legislation to disclose UBO, which was addressed in the amendment bill, but it inexplicably denies access to this data by the media and the public.

The CIPC is an efficient state agency with an effective IT infrastructure that could provide this access, but it is not the custodian of the Companies Act and can only implement the law as gazetted. Public access to UBO registers has long been in place with most of our European trading partners and our African neighbours Ghana and Nigeria, and commitment to this effect has been given by Kenya, Senegal and Zambia.

The principle that the affairs of companies cannot be entirely private is well established in our law. The Constitutional Court ruling in 1996 by Justice Ackermann in Bernstein v Bester NO stated as follows:

“The establishment of a company as a vehicle for conducting business on the basis of limited liability is not a private matter. It draws on a legal framework endorsed by the community and operates through the mobilisation of funds belonging to members of that community. Any person engaging in these activities should expect that the benefits inherent in this creature of statute, will have concomitant responsibilities ….”

A further simple argument is that the reasons for shareholders keeping beneficial ownership secret from the public are probably precisely the same reasons the public requires transparency of ownership. Given the corporate malfeasance of our recent past, it is patently clear that transparency should prevail over secrecy, and the relevant authorities need to explain to the media and public why they are denied access to private company UBO registers.

The battle of wits

Advances in technology are linked to the evolution of cybercrime and crime syndicates, who stay abreast of these advances and change the way they operate in response.

Before the explosion of technology in its daily use by individuals, cheque fraud and manipulation were common. The movie Catch Me if You Can, starring Leonardo DiCaprio as a brilliant forger, whose skill at cheque fraud had netted him millions of dollars in stolen funds, is a good example of crime at the time. Today’s potential loot from victims of fraud on the internet is beyond comparison in size and impact.

In January 2024, Bob Dyachenko, owner of SecurityDiscovery.com, and a team of researchers from Cybernews discovered a data breach on an unsecured web instance of over 26 billion records. Interestingly it was found that Leak-Lookup, a data breach search engine, was the holder of the leaked dataset. “The dataset is extremely dangerous as threat actors could leverage the aggregated data for a wide range of attacks, including identity theft, sophisticated phishing schemes, targeted cyberattacks, and unauthorised access to personal and sensitive accounts,” the researchers said. This demonstrates how complex the issue of cybersecurity has become.

Privacy legislation, such as the POPI Act is meant to prevent unauthorised use of identities and private information, yet private information sits on multiple servers and hard drives that, with enough effort and astute access, can be copied. Municipal accounts, bank accounts, cloud storage of files on laptops or PCs, VISA or Mastercard account information, retail loyalty programmes with Pick n Pay or Shoprite, patient information stored by medical aids and home affairs ID information are all a target of professional hackers who are continually attempting to steal it.

The impact of cybercrime on the economy

According to Billy Petzer, research group leader: cyber security systems, at the Council for Scientific and Industrial Research (CSIR), the impact of cybercrime on the economy is estimated at R2.2bn per annum.

At corporate level, successful hacks can become very expensive, paralysing a company’s networks and data access. A WOW report on the information technology industry indicates that increased spending on cybersecurity solutions represents a growing opportunity for providers of IT services. The report referred to a February 2023 survey of 163 IT and security professionals by cybersecurity consultant Artic Wolf undertaken for ITWeb, which revealed that 74% of respondents said that their cybersecurity budget for 2023 would increase. Altron reported in the year to end-February 2023 that small to medium size companies that are listed as a vendor for a major enterprise supply chain may need to meet the cybersecurity standards of the enterprise to comply with vendor security requirements.

What can be done to counter the sophisticated growing industry?

Today, half of all the personal information of individuals, including bank account numbers South African Social Security Agency (SASSA) pay-out information and passwords, are stored on their mobile phone, an item that is purposefully targeted by thieves.

Some data or information is unavoidably necessary to function in society, and cell phones have become instrumental in transaction security checks. Everybody has a debit or credit card linked to a bank account and other accounts, home loans, car loans, investments etc. How do we shop without a card? To store all one’s data on a hard drive or keep it in a safe and only do cash transactions has become impossible. Woolworths will no longer accept cash for a coffee as cards and digital tools become the norm.

Online payments request all your card detail information without signature or other physical intervention. Payment systems get hacked, and recipient cell numbers get altered with painful consequences.

Relentless crime warriors are helping with cybersecurity

Cybersecurity has become a battleground of cybercrime syndicates and advancing technologies by software developers.

It has become an elaborate and intricate web of controls and checks to keep predators at bay. The relentless software updates even by the likes of Microsoft, Apple and Samsung to plug “vulnerabilities” demonstrate that the sophistication of cybersecurity defences is ever evolving.

To find out more about this growing industry and sector, purchase WOW’s full report on the IT industry in South Africa.