In terms of the economic recovery from the Covid-19 Pandemic, many countries around the world have announced concrete plans to reinvigorate their economies to overcome the financial impact of the Covid-19 Pandemic.
In addition to our own problems regarding the vaccine rollout, South Africa is suffering from legacy issues related to energy supply. This has been complicated by the recent bout of loadshedding which Eskom has warned will take at least two years to resolve. We are currently seeing the pressures that are inherent in South African society boiling over turning into sporadic violence which is threatening the security of society.
We have already been warned by economists that it will be difficult to quantify the economic impact of loadshedding for a short period of time. However, we have also been told that 2020 was the worst year of loadshedding that the country experienced since 2008, therefore, an extended period of loadshedding will benchmarked against those figures. Indalo recently read an interesting report by Instinctif Partners which paints a picture of what the loadshedding impact was in 2020.
There are important points regarding the contraction of South Africa’s economy. However, what is important for BRPs is the impact that loadshedding had on unemployment.
Disincentivised and disinvested
The report pointed out that, adding to the opportunity costs, blackouts have disincentivised companies from committing long-term capital to investment projects, further undermining both growth and employment prospects.
The desperate exit of AngloGold who sold it’s last remaining assets at half of its book value is a clear indication of fading interest in what was once the biggest economy on the continent and a gateway into Africa. Manufacturing, mining and other employment generating sectors have been the hardest hit.
It is further disheartening to see that several mass retrenchments were on the cards in such a high unemployment environment. Mining company Glencore issued section 189 notices to 665 employees as it struggled to keep its Rustenburg Smelter operational due in part to uneven energy supply and Sibanye-Stillwater reported that 1 142 employees were retrenched following operational restructuring at its Marikana operations. Additionally, Telkom announced at the time that it was considering 3 000 retrenchments and SAA and Massmart were looking at a potential 4 700 and 1 440 employees respectively, who may lose their jobs.
The report added that, furthermore, the extremely high level of unemployed youth is a structural risk to our society. When considered in the light of our current low growth rate, expected additional destabilisation from the impacts of Covid-19 and our impending investment downgrade, the economic prospects for South Africa seem dire.
Photo By: Gallo Images / Phill Magakoe
Zero-point-something growth outlook
The report pointed out that, traditionally South Africa generated a considerable amount of its GDP from primary services that include mining, manufacturing and agriculture. Recent stats show that manufacturing production decreased by 5.9% in December 2019, owing to severe power shortages, which negatively impacted local economic activities.
The knock on effect of reduced productivity is fewer sales and exports, which ultimately reduces tax revenue collection for the South African Revenue Service. Trading and general economic activity have been severely affected by load-shedding. Eskom, which also faces its own troubles in terms of the exorbitant debt burden, is another risk to the economy.
We have a problem
Before Covid-19, Africa was home to three of the worlds fastest growing economies. Covid-19 has levelled this playing field, but can South Africa take advantage of this? Common sense says that it will take a lot of hard work to do so.
We need to resolve the employment situation in South Africa. If we look at SAA and the South African Broadcasting Corporation (SABC), we see two companies that had a major staff compliment who had to redefine their position after finding themselves in distress. Without stable energy supply, this situation is going to get worse as companies cannot deal with the pressures of a changing landscape (which has been influenced by Covid) and the inability to operate at full capacity because of loadshedding.
Eskom has indicated that loadshedding is going to be an issue until at least the end of 2023. If this is the case, loadshedding may well be a root cause of distress. How do we factor this into the advice we give clients?
Charles Phiri is an Associate at Indalo Business Consulting
