The impact of power shortages on the financial performance of selected South African manufacturing firms listed on the JSE

Abstract

For the past 16 years, Eskom has been struggling to supply constant power to consumers, with frequent power disruptions in South Africa. Consumers, such as manufacturing firms, rely on a steady supply of energy in the form of electricity for their production processes, thus, they have been significantly affected by recurring power outages. Therefore, this study sought to determine the effect of power outages on the financial performance of South African manufacturing firms, particularly those listed on the Johannesburg Stock Exchange (JSE). A secondary quantitative research approach was employed in the study, looking at financial data from 107 JSE-listed manufacturing firms for ten years (2012 to 2021). Fixed and random effect regression approaches were used to analyse data. Return on Assets (ROA) and Tobin’s Q were selected as the dependent variables. In contrast, average electricity pricing (AEP), total load shedding hours (TLH), size, risk, retention rate (RR), and sales were selected as the independent variables. The AEP and TLH are external business factors, while the remaining four are internal business factors. The findings suggest that AEP has no impact on ROA and that external factors have no impact on the financial performance of South African listed manufacturing companies. These results contradict the resource-based view (RBV), which states that internal factors rather that external factors are the primary drivers of financial performance. Contrary to the primary declarations of the RBV, the coefficient of total load shedding hours (TLH) to Tobin’s Q demonstrates that the external factor in the form of TLH has a substantial impact on the financial performance of manufacturing enterprises in South Africa. This study is significant for two reasons: first, it advances knowledge on the impact of energy scarcity on the manufacturing sector, and second, it contributes to ongoing research on financial performance. It is recommended that the government and the policymakers make more investment and policies on alternative energy sources to enhance the energy mix. The manufacturing companies should consider more ways on how to convert their waste into energy source.