Linking SMEs and alternative energy

By Lionel De Oliviera of SEIDOR Africa

Johannesburg, 24 Feb 2020
Read time 3min 10sec

The small and medium enterprise (SME) sector fulfils a major role in contributing to the growth of the South African economy and is a critical component of an inclusive economy. The SME sector employs 47% of the workforce in South Africa, contributes more than 20% of the gross domestic product (GDP) and pays about 6% of corporate taxes.

The National Development Plan envisages the SME sector will create about 90% of new jobs by 2030. In addition, the digital revolution is expected to profoundly change the operations of SME owners as well as how they are funded, grow and change the economic landscape between now and 2030. The South African economy is also changing fast and technology is the single biggest driver.

Infrastructure, such as electricity, is essential for the operation of any business. Power cuts, as often experienced in South Africa, have a negative impact on small businesses through the reduction of production capacity, resulting in lower turnover, which causes a low SME growth rate. The unexpected nature of power cuts has a very real and tangible impact on SMEs that rely on Eskom for 100% of their energy needs.

An International Monetary Fund (IMF) team, led by Ana Lucía Coronel, which visited South Africa in November to conduct its regular Article IV consultation activities, found persistently weak economic growth in the country, largely attributable to, among other issues, unreliable electricity that especially disadvantaged SMEs.

What South Africa needs is to stabilise public producers of electricity, encourage more private producers and independent power grids and accelerate energy projects in order to stabilise supply and lower the cost of electricity. The development of renewable energy is also important, which can have the largest impact on SMEs that are faced with ongoing tariff hikes and other power-related issues.

It is therefore important for SMEs to become involved in alternative energy. This involvement could be to simply “go off the grid” for small businesses, or getting involved in producing alternative energy by taking advantage of the incentives provided for the installation of renewable energy solutions. SMEs can claim a percentage of the cost of solar and other renewable energy solutions back from SARS, while some financial institutions offer financing for renewable energy solutions.

According to a Gordon Institute of Business Science (GIBS) Working Papers Showcase on Green Entrepreneurship in South Africa, the market for energy generation and storage technologies has been booming in recent years. While the trend of falling prices for solar has continued, South African entrepreneurs have started to turn to this form of alternative energy to deliver value propositions to their customers and society.

SME involvement in the alternative energy space will also support Sustainable Development Goal (SDG) 7, which envisages universal access to affordable, reliable and sustainable energy, which is essential to attain the other SDGs, while it is also at the centre of efforts to tackle climate change.

Two research studies conducted in Romania and Italy and published in the Sustainability Open Journal during 2019 emphasise the significance of improving environmental sustainability in line with operational efficiency through the use of enterprise resource planning (ERP) systems and ICT to increase competitive advantage and handle various environmental challenges. Therefore, ERP systems have become an important strategic tool in the competitive SME environment.

It is time for all of us to work at keeping the lights on. Is your SME ready?