Healthcare Q&A: Is your workforce fit and healthy?

How much of an impact are the load-shedding events having on business life in South Africa at the moment? The impact on business is significant and critically negative. Controlled blackouts since December 2014 have had a serious negative economic impact. The cost to the economy, based on one to 10 hours of blackout per day for 20 days per month, is estimated to be: stage 1 load shedding—R20bn/month stage 2 load shedding—R40bn/month stage 3 load shedding—R60bn/month A recent technical fault at the Koeberg nuclear power plant, attributed to human error, is estimated to have cost the country R7.5bn. Additional diesel costs for one week at Koeberg are estimated to be R250bn. Eskom’s chief economist, Mandla Maleka, revised his gross domestic product (GDP) growth forecast from 2.5% to 2.2%, partly because of load shedding. But this GDP growth forecast may be optimistic, as the GDP for South Africa for 2014 was recorded at 1.5% and this was before load shedding.hideEskom has warned there is a high probability of loading in February, March and April—a total of 62 days. In 2007-2008, load shedding was for 23 days. Nersa, South Africa’s energy regulator, deemed that these 23 days cost the South African economy R50bn in 2008, or R2.7bn a day. The estimate was based on R75 per lost kWh. Heavy industry has been told to reduce consumption by at least 10%. Henk Langenhoven, chief economist for a federation representing the energy-intensive steel and engineering industries, estimates that electricity disruptions could slash production by 23%. “The system will remain tight for the next two to three years, until our new power stations are fully operational,” Eskom spokesman Khulu Phasiwe said recently. What do you consider to be the main risks from these? Possible consequences include unproductive hours in mining, agriculture, manufacturing and in offices. Can you give more details about the impact? It can mean lower turnover with consequential staff layoffs and lower taxes receipts to the government coffers. Higher overheads make firms uncompetitive in the global markets. In agriculture, it will result in higher food costs and a strain on household budgets. Shortcuts to make up production may cause accidents. In financial terms, it can make the cost of borrowing higher and put pressure on the fiscal system. For companies, the increase in electricity tariffs will probably be 12.7%. The regulator granted 8%. This increase is for those supplied by Eskom. Those who have their supply from the municipalities will see a higher increase. There will also be increased overhead expenditure on mitigating measures, for example purchase of fuel to generate energy. Higher unemployment can result in more civil disobedience, theft and xenophobia, as well as an increase in substance abuse, crime, terrorism and money laundering. Unproductive hours in traffic can result in road rage and high stress levels, with a consequent increase in alcohol intake. Resulting accidents (fatal and/or severe) result in the possible loss of a breadwinner. In terms of health, water can be contaminated with pumps not functioning, resulting in diarrhoea. There is also a hygiene/sanitation risk from sewerage plants not functioning and there is a risk of food poisoning from food that is not safely preserved. For education, there is also a risk that schools cannot function properly meaning syllabus targets are not met. Positive impacts can include new managers/leaders, improved sales of generators and more emphasis on renewable energy, including: Solar (for example, a handheld solar panel can be given to those in the informal settlements, which they can use instead of candles. Candles are a trigger for fires, burns and deaths) Wind The private sector has invested R80bn in renewable energy projects in the past few years. What about the water shortage? According to the UNEP Finance Initiative: “South Africa is a water scarce country where the demand for water is in excess of natural water availability in several river basins. “Water pollution is a growing problem and can be attributed to municipal pollution, industrial effluent, acid mine drainage and salinisation caused by irrigation. Municipal pollution due to informal settlements built close to watercourses has been linked to contamination of irrigation supplies and, as a result, retailers have threatened to cancel fruit imports from regions where pollution is in excess of their local standards for food production.” The South African Department of Water & Sanitation (DWS) says Gauteng Province is the economic hub of South Africa, however in September 2014, parts of Gauteng were left without water for three weeks. Anthony Turton, a scientist specialising in water management, says: “The systems required to manage our water resources are failing. This is a major national crisis that threatens the lifeblood of the country.” There are two main reasons: Inadequate investment in water infrastructure for the past two decades because of government’s priority to expand access to potable water; and Shortage of technical and engineering skills in government to manage and maintain water resources and infrastructure. The more significant dilemma is the leaking asbestos-cement water pipe system. The system was laid in the 1940s; therefore it has passed its 50-year lifespan. Rand Water has issued a technical report, which recorded that most of the pipes are at the limit of their design life, many having exceeded that by decades. A 2013 government survey estimated an average of 36.8% of all the water piped to taps by municipalities is lost through leaking pipes—equivalent to the total annual water supplied by Rand Water, the country’s biggest water utility and one of the largest in the world. Warnings were first raised in 2008. The DWS calculates that it needs R700bn in the decade to finance the growing backlog in infrastructure. Only 50% is budgeted for; the balance will be sourced from bond markets and banks. In July 2014 the DWS had only 31% of its complement of civil engineers and, of the filled engineering posts, 25% were between the ages of 60 and 64 (retiring within five years). The National Business Initiative’s SA Water Annual Report 2013 states: “Water scarcity [is] the most significant water-related risk for the surveyed, JSE-listed companies. “With much of the region’s economic activity occurring in areas of reduced water availability, growing concerns regarding water quality and infrastructure and the continuing legacy of unequal access to water, there is an evident need for private sector engagement to promote more sustainable water practices. “A particular area of concern relates to the poor understanding of risks in the supply chain, with 28%, (21% in 2012), of respondents unable to identify whether their supply chain is at risk.” Is this recognised as a big risk as yet? Moderately, in some companies. Overall, 57% of water usage in SA goes to agriculture but if current policy reform proposals were implemented there would still be a great disparity between supply and demand. In 1994, 59% of the population had access to potable water. Now, 95% of the population has access to potable water. The CDP SA Water Report 2014 reveals that, of the 58 companies from the JSE 100 that participated and eight companies outside the target sample, they agreed exposure to water-related risks are increasing. Ninety percent of responding companies (83% in 2013) report their direct operations are exposed to water risks and 55% believe these risks will materialise within the next three years. Half have experienced detrimental water-related impacts that have had financial implications. There are four elements of risk: 1—Physical risk, drought or pollution 2—Reputational risk 3—Regulatory risk 4 –Financial risk The CDP SA Water Report 2014 looked at certain companies in the JSE100. The six self-selected respondents did not include some of the country’s—and Africa’s—largest companies. If you look at their annual reports, no mention is made of water risk in their key strategic and operational risks. However, in my opinion, the more concerning gap is the opinion of the emerging companies. These are the companies that create jobs in a developing country. The National Development Plan expects 90% of the 11 million new jobs needed by 2030 to come from small to medium-sized enterprises (SMEs). These companies already face regulatory challenges—will they have time to manage water risks? The SME Growth Index shows small firms spend an average of eight working days a month dealing with red tape. Taxes, labour and black economic empowerment issues are identified as the most time-consuming. So, the under-the-radar risk here is that these companies may not be monitoring water as a risk. This excludes partnerships and sole proprietors. A number of medical practices are either partnership or sole proprietors. Have dentists given consideration to water as a risk? There are some positive impacts. Sugar producer Illovo has invested R84m in upgrading its irrigation system to improve water and energy efficiency and Marks and Spencer, in 2012, performed an exercise to analyse the water risk among its global suppliers. It identified Ceres, from which it sources stone fruit such as nectarines, peaches and apricots, as a hotspot. The firm decided to look at how it could reduce water risk in that area. SABMiller also plays a real lead in terms of water risks, disclosing issues of water risk and trying to turn things around in the catchments where it has a footprint. SAB’s water disclosure shows that an estimated 155 litres of water goes into making a single litre of beer in its SA operations. The brewery has entered into partnerships with various groups to develop water projects that will benefit the entire catchment area, including many farmers who are not SAB suppliers. Are particular sectors hit harder than others? Yes—agriculture, mining and manufacturing. Also, service industries, such as hospitals. This is a risk that has not received much attention. Which sectors are hit hardest and what is being done to mitigate these risks? Briefly, all sectors. Very little is being done. Businesses are still driven by short-term goals. Very few businesses are able, or have the appetite to measure what is below the ‘iceberg’. Furthermore, most decision-makers have a very narrow approach to the wellness of their staff. They are of the opinion that their responsibility is to achieve the company’s primary goals and that wellness of staff is not their remit. Unfortunately, in South Africa there is a huge pool of unemployed and this allows businesses to adopt a cavalier business style. Remuneration of staff is also low and many businesses are of the opinion that staff are easily replaceable. It is my opinion that this would change, if the metrics were provided to them. Unfortunately, these metrics are not to hand and this is a gap in the market which can, with due diligence, be closed. Once businesses understand the monetary impact of poor health in their staff and are prepared to make a stand, this attitude will change. It will require a huge amount of courage from business leaders. It is very much an elephant-in-the-room scenario. Companies that are ahead of this curve are well positioned to take their businesses further and are ‘future fit’. SABMiller is one of the very few companies that have a mature approach to health and wellness. Consider absenteeism—a spend of R1 on active management can save more than R500 per employee per year. As a rule of thumb, for every R1 on a company’s income statement allocated to health and wellness, there is R4 below the line that is either lost or unaccounted for. We are also hampered by a lack of statistics in South Africa. What more could be done? Communicate on a national level that health is fashionable. Communicate with school children the importance of healthy eating and outdoor exercises. Communicate with the investment community that they need to include this their analysis of companies. *Health Gateway is a company that aims to collaborate with clients in assessing and developing a health and wellness programme, including risk management assessments.

Healthcare Q&A: Is your workforce fit and healthy?

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