Energy

Load-shedding far worse for economy than stated

Load-shedding’s impact on the South African economy is worse than stated, as there is no way of quantifying the cost of lost opportunities for investment and growth. 

This is according to Stanlib’s chief economist Kevin Lings who told BizNews that he thinks the impact of load-shedding on South Africa is worse than we know. 

The South African Reserve Bank estimated that load-shedding would cost the country 2% of GDP growth in 2023. 

It also reduced its annual growth outlook to 0.2% from 0.3% projected at the Monetary Policy Committee meeting in January. 

It said this is mainly due to the adverse effect of structural issues such as load-shedding and poor rail performance on the economy.

These issues “have become more binding” at the beginning of 2023, further constraining economic growth. 

The SARB also based its outlook on the “assumption that not much of an improvement can be expected in the near term”, with a lack of implementation hindering any real turnaround.

Lings said the impact is even worse than the Reserve Bank estimates. “I think it is costing us more than that in terms of lost opportunities,” he said.

“It is almost impossible to quantify the impact of investments put on hold or moved to other places in Africa.”

These changes from companies and investors will inhibit economic growth over a longer period as the country will lose out on additional employment, investment, and tax revenue. 

“There is a huge array of costs that South Africa has already incurred as a consequence of this”, Lings said. 

Load-shedding dominates his discussions with foreign investors, which leaves little room to talk about positive developments in the country. 

Furthermore, foreign investors are unconvinced that load-shedding can be solved and South Africa will have an ample electricity supply soon. 

“There have been massive problems within Eskom and little progress in putting it into better shape”. 

Private sector stepping up

The Reserve Bank noted a cause for optimism in the increased resiliency of the local economy to the unstable electricity supply. 

The impact of load-shedding on South Africa’s GDP is expected to decrease significantly in 2024 and 2025 to a negative impact of 0.8% and 0.4%, respectively. 

This is due to the significant increase in private sector investment in backup power and alternative energy sources. 

Stronger economic growth is expected in 2024 and 2025, albeit to a mere 0.8% and 1.0%. 

Total investment growth, however, is projected to be somewhat flat at around 2.5% per year over the medium term. 

The subdued trajectory for fixed investment reflects low business confidence, intensified load-shedding, and an uncertain political outlook.

The central bank called on the government to implement its reform agenda in the electricity and logistics sectors. 

Deregulation of these sectors and their opening up to private competition could spur private-sector investment in South Africa and lift growth over the medium term. 

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