Load-shedding relief not enough to boost economy – Reserve Bank 

The recent improvement in energy supply is not enough to boost the South African economy, as the effect of load-shedding on business had broadly been nullified by the beginning of the year due to the shift to alternative sources of electricity. 

This is feedback from the South African Reserve Bank’s Monetary Policy Committee (MPC), which voted to keep interest rates unchanged for the sixth consecutive meeting. 

Reserve Bank Governor Lesetja Kganyago said that despite inflation risks being balanced, there is an unusually high level of uncertainty. 

Interest rates have been hiked by a cumulative 475 basis points since the start of the hiking cycle, with these efforts beginning to show results. 

However, little progress has been made on the economic growth front, with the Reserve Bank keeping its forecast of 1.2% GDP growth for 2024. 

Its expectations for GDP growth in 2025 also remain unchanged as the bank is unconvinced that South Africa’s two-month load-shedding reprieve will meaningfully boost the economy. 

Economic activity indicators for the first quarter have been coming in worse than expected despite reduced electricity load-shedding. 

“We expect slightly weaker first-quarter growth, but this will be offset by better second-quarter growth,” the MPC said. 

While the Reserve Bank has lowered its load-shedding forecast and the impact it will have on the economy in 2024, it said it does not expect it to enhance economic activity anytime soon. 

“The recent improvement in the power supply, with no load-shedding since 26 March, is a welcome development.” 

“We have revised our load-shedding assumption down, but additional revisions may be required if this performance is sustained,” the MPC said. 

Overall, the Reserve Bank expects growth to accelerate in the next few years as inflation stabilises and the structural constraints on the economy are addressed. 

Load-shedding won’t matter by 2025

The minimal impact of load-shedding on the economy was analysed by RMB chief economist Isaah Mhlanga late last year, where he said its effects would be negligible by the end of 2024. 

This also means that its absence will not necessarily result in a major boost to the economy, as most companies would have mitigated its effects already. 

Mhlanga said it is very difficult to estimate the impact of load-shedding on the economy as one has to consider the country’s energy intensity, the amount of energy lost, and the length of time the energy is shed, among other factors. 

Thus, the impact of load-shedding varies across estimates from -0.2% to -4.2%. 

These estimates, however, do not consider the rapid growth of private power generation through rooftop solar and commercial projects. 

This has increased the economy’s resilience and reduced the impact of load-shedding on economic output. 

Therefore, the impact of load-shedding will likely be less than estimated, as shown by the country’s better-than-expected economic growth amidst intense load-shedding. 

Mhlanga warned that the impact may still be greater than estimated as it is such a complex problem to model, and its influence extends beyond energy-intensive sectors such as manufacturing and mining. 

Despite the difficulty in calculating the impact of load-shedding, Mhlanga is sure that the effect will be reduced over time and be negligible by 2025 as the private sector ramps up energy production.

RMB estimates that the private sector will add over 6,000 MW to the grid from the beginning of 2023 to the end of 2025 and 19,300 MW from 2025 to 2030.