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A few weeks ago there was a major power cut in the Netherlands leaving almost an entire province without electricity for the bigger part of one day. Homes, schools and offices were without electricity while hospitals and factories switched to their generators. Air traffic was affected, while trains, trams and metro’s came to a standstill as came most of normal life. People were puzzled and didn’t know immediately what to do as something like this hardly ever happens. Not surprisingly this was headline news, while explanations were demanded as to what caused the power cut. By law the service provider is liable for damages and a regulation is in place defining the compensation to be paid per hour to business owners. This doesn’t apply however when the damage is located in the high tension cables, which was the case here. How different things are here. We experience a power interruption several times in my office while most evenings of the week the lights are gone for some three hours or so.
While old lines and transformers need to be replaced, it also seems the supply of electricity can no longer keep up with the demand which is growing exponentially as the erection of buildings throughout the country continuous at a pace, which the electricity supplier cannot keep up with. I assume that the gap between demand and supply even widens as we move deeper into the dry season as the water levels of the operational hydropower plants are receding. We may not expect the situation to improve until new hydropower projects have been completed and the country will be in a situation to generate enough electricity for domestic consumption as well as export. Until then however, we probably have to live with the regular disruption of power supply.
While this situation is rather inconvenient at household level, for businesses this reality is a liability and a threat, as production goes down and production costs increase, as many businesses resort to generate electricity by means of a standby generator, incurring additional investment expenses and running costs. Business owners who cannot afford such solution are left with an actual loss in production time, which increases costs as well.
The current irregularity of the interruptions causes unnecessary problems and damage though and I’d rather deal with regular and scheduled power rationing earlier than later, as this will allow businesses to deal better with the situation, plan for alternatives and adjust their production processes accordingly. It will also help in calculating changes in production costs and make decisions about adjustments in production and pricing. Inconvenient as the power interruptions may be, it is easier to deal with it when scheduled than not.
While including regular power interruptions in the business risk analysis, the next step will then be to think of ways how to respond to the situation in a proactive manner, in other words have a plan “B”. Waiting and seeing while sucking our teeth will not be a very effective way of dealing with certain situations.
Other important issues that need to be considered in a risk analysis and that require continuous scanning include economic developments and trends (think of the consequences of the global financial crisis), political developments, social structure, infrastructure (electricity supply for example), growth trends for your products, cultural acceptance of your products, market data, market size, tariffs, existing and potential competition, sales projection, production costs and potential profits.
While making a risk analysis and market scan it is important to consider external factors like the ones mentioned above and ask yourself, whether you have any influence over them. If you have an influence over a factor, it means there is something you can do about it. If you don’t have an influence over it, there is nothing you can do about it so you better don’t waste your time trying to. Instead try and find out how to deal with it or think of ways in which you may be able to extend your influence over that particular factor. And if there is not much you can do about a certain issue by yourself, joining forces with investors in the same position may help. That is why it is important to have associations, as members of a particular important market sector may be able to lobby for their common interests.
Now, scanning markets and analysing risks is not about being pessimistic or negative. It is about being realistic, about being informed and about being prepared. It is about having contingency plans in case things work out differently than initially expected. It is about having a “Plan B” in place. I know it is in our nature in Ethiopia to wait and see what will happen tomorrow, sleep over it, and to respond to situations as they arise. Once a crisis is beginning to unfold we happily go into our crisis management mode and we are good in crisis management in this country. Being prepared, knowing what and what not to do and dealing with developments in a proactive manner before they turn into a crisis will be more effective though.
Irregular power interruptions are a reality and they will be with us in the near future. Better deal with it and be ready to continue production then to accept it and count our losses.