Load-shedding to reduce GDP by 2%

Load-shedding is expected to reduce South Africa’s economic output by 2% in 2023. However, the local economy is becoming more resilient to its effects. 

This is according to the South African Reserve Bank’s (SARB) latest Monetary Policy Review, released on 25 April. 

The Bank further reduced its growth outlook for the year 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. 

Economy becoming more resilient to load-shedding

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%. 

Alongside household consumption, private investment is again expected to support growth over the medium term, increasing by 7.3% in 2022. 

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.

Privatisation and deregulation are the answer

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. 

This follows comments from SARB Governor Lesetja Kganyago, who called for sweeping reforms to macroeconomic policies to boost economic growth and lessen exchange rate volatility.

Proposed changes include structural reforms, deregulation of the nation’s transport and electricity sectors, lowering the inflation target, and shifting back to predictable, transparent fiscal policy rules.

“With the rise in debt created by our efforts to confront weakening growth and failures of state enterprises, there is little chance of improving credit quality without new rules and more strategic use of macroeconomic policy,” Kganyago said in a speech. 

Public finances in South Africa were hard hit by a decade of graft, known locally as state capture.

A full house of junk credit ratings and rising government debt followed by a R254 billion relief package for power utility Eskom are adding to the strain.