South African economy becoming Eskom-proof

Absa said the private sector’s investment in its own generation will continue to make the economy more resilient, despite Eskom’s declining performance.

According to Absa’s South Africa Q3 2023 Quarterly Perspectives, the economy has proved exceptionally resilient through a series of adverse domestic supply shocks this year.

“These include disruptions to rail and port operations, weather events and, of course, ongoing electricity shortages,” the bank said.

In particular, the country’s electricity crisis has significantly hampered economic growth.

However, despite the scale of the electricity supply challenge in H1 2023, South Africa’s economy has shown remarkable resilience, the bank said.

GDP expanded by 0.4% quarter-on-quarter in Q1 2023. At the start of this year, the consensus expectation was for zero growth in Q1. 

Absa said the resilience of the first quarter appears to have carried into Q2 2023. While data is a little more mixed than in Q1, it broadly points to yet another quarter of positive GDP growth. The bank forecasts GDP growth of 0.3% quarter-on-quarter for Q2. 

One reason for this resilience could be the private sector, said Absa.

“While Eskom struggles to stabilise the performance of its generation system, the private sector seems to be continuing to lift investment in own generation,” the bank said. 

In late May, the government provided an update on the implementation of Operation Vulindlela (OV) reforms to Q1 2023.

The government reported that it was tracking the progress of 108 private, largely renewable, power projects, amounting to just over 10,000 MW. 

According to the update, over 13,300 MW of private projects were in the first step of securing grid connection before registration with NERSA. 

While some overlaps in these datasets are likely, they all point to a big private sector push in the energy space, Absa said.

This is supported by the recent surge in PV panel imports, as tracked below.

In its weekly system updates, Eskom also reports its estimate of private solar panel installations – including rooftop and ground-based installations that wheel through the grid. 

The utility estimates that as much as 4,412 MW was installed as of June 2023 – a more than four-fold increase from March 2022. 

“As such, while Eskom’s operational challenges and unpredictability are likely to persist, we believe that ongoing private efforts in generation will continue to make the economy more resilient over time,” Absa said.

RMB head of markets research Isaah Mhlanga has also pointed out that South Africa’s economy is becoming less reliant on Eskom for its electricity supply.

His view is based on data which shows that load-shedding’s impact on energy-intensive sectors such as manufacturing is diminishing. 

Mhlanga told 702 that, historically, the correlation between the manufacturing sector’s performance and load-shedding levels has been very strong. 

Higher stages of load-shedding would typically result in reduced manufacturing output. 

However, manufacturing volumes have remained relatively stable in 2022 and the beginning of 2023 despite the increased intensity of load-shedding. 

Mhlanga attributes this to the increased electricity supply from the private sector, as the amount of non-Eskom electricity supply has steadily increased. 

“In the future, we will have less and less of an impact on economic output from the unstable electricity supply,” Mhlanga said.