Global Courant
South Africa is in the dark. Literal.
The country is experiencing its worst power crisis ever, with frequent and severe power cuts known as load shedding. And it takes its toll on businesses, regardless of size.
MultiChoice Group, South Africa’s largest pay-TV provider, recently announced its annual financial results. And the report shows that the company’s profits fell by more than 200%, going from a profit of R2.8 billion ($150 million) in the past fiscal year to a loss of R2.9 billion ($155 million).
The company blamed the weak edge and constant power outages as the main causes of these unimpressive numbers. According to them, it was not primarily about consumer purchasing power. Inflation reached an 11-month low of 6.8% in April, but that did not translate into consumer spending on pay TV. Instead, MultiChoice found an increase in customer churn (the rate at which customers unsubscribe) when the tax credit reached Stage 4 and above, even when customers had disposable income.
“This is evidenced by the decoupling between the 90-day subscriber growth of 290,000 (showing that customers still appreciate the group’s products) and the 140,000 drop in the active subscriber base at the end of March (customers are more selective when they sign up for avoid periods of excessive tax shedding),” the company said. As a result, MultiChoice will not pay a dividend to its shareholders this time.
But MultiChoice is not alone. Telkom, South Africa’s third largest mobile network operator by subscriber base, is suffering the same fate. Recent financial results for March 2023 show profits are down 76.6%. Telkom’s profit, measured in headline earnings per share (HEPS), fell from 575.3 cents to 134.6 cents. And the company’s statement pointed to tax divestment, among other things.
“Significant market changes and economic factors, including accelerated load shedding, low economic growth and a high interest rate environment, coupled with rapidly evolving technologies, have negatively impacted the group’s profitability,” Telkom’s statement read. .
Telkom’s financials showed that it spent more than R150 million in additional costs to deal with the divestment. Some of the costs incurred by South African telcos from the load shedding include the installation of solar panels, batteries and deals with independent power producers.
The fate of MultiChoice and Telkom reflects the growing losses incurred by South African companies from burden divestitures. a research by Nedbank showed that 64 percent of small businesses stop working during divestment, and most have reduced their workforce.
According to a study by Trade and Industrial Policy Strategies (TIPS), a South African research organisation, the divestiture will cost the country’s economy alone between R59 billion ($3.2 billion) and R118 billion ($6.3 billion) by 2021. But this year, the central bank predicted the country would lose nearly $13 billion. There is no end in sight for the energy crisis. Companies will therefore have to improvise or innovate to meet their energy needs.
