In terms of recovery from the Covid-19 Pandemic, South Africa is facing many more challenges than the inability to effectively roll out its Covid-19 vaccination programme.
Since the beginning of June, Eskom has been implementing loadshedding in order to stabilize the electricity grid while it was dealing with several performance issues at its power plants. This is a sore point for South Africans and once again highlights the sorry state of our State-Owned Entities.
Apart from the inconvenience, this round of loadhsedding comes at a time when South Africa is trying to overcome the worst economic impacts of the global pandemic. The key question is: how will this round of loadhsedding impact our economic growth?
The benchmark
In order to quantify the answers to this question, we have to look at what loadshedding has cost the country in the past. Instinctif Partners published a report on 11 March 2020 titled: The Economic Cost of Darkness.
The report points out that, at the time, Moody’s revised SA’s 2020 GDP growth forecast to 0.4%, citing a stalling economy, the crippling effects of power outages and the expected economic impact of Covid-19. Furthermore, Stats SA announced that the South African economy contracted 1.4% in the fourth quarter of 2019.
The report added that, as a result of the Q4 performance, South Africa’s economy only grew 0.2% in 2019, its worst since the global financial crisis in 2009, when it shrank 1.5%. There were a lot of expectations that the resumed blackouts would have an even more severe impact on Q1 (2020) growth numbers – especially when coupled with the Covid-19 narrative. Research from Efficient Group found that load-shedding had reduced our GDP growth by roughly 0.30% in 2019, the equivalent to R8.5bn of real GDP.
The report pointed out that there were several mass retrenchments on the cards in such a high unemployment environment. Mining company Glencore has issued section 189 notices to 665 employees as it struggles to keep its Rustenburg Smelter operational due in part to uneven energy supply, Sibanye-Stillwater reported that 1142 employees have been retrenched following operational restructuring at its Marikana operations. Additionally, Telkom announced it was considering 3 000 retrenchments and South African Airways (SAA) and Massmart were looking at a potential reduction of 4 700 and 1 440 employees respectively.
Much of a muchness?
We now know the devastating impacts of loadshedding at a time when the Pandemic had little to no impact on the economy. Will we suffer similar losses this year? Turnaround Talk spoke to Isaah Mhlanga, Chief Economist at Alexander Forbes, to find out more about this.
“If we are focusing on the recent round of loadshedding (which was instituted at the beginning of June), it is difficult to quantify the impacts of an event that has lasted only a couple of weeks. It is even more difficult to quantify this because we are still seeing a few restrictions in terms of global supply chain. Therefore, it is difficult to disentangle the challenges of the Pandemic with loadshedding. What we do know is that South Africa’s contraction in 2020 was 7% and we faced the worst period of loadshedding since 2008. The loadshedding that we have seen this year thus far cannot be worse than 2020,” said Mhlanga.
The significant caveat to this are the words thus far. Mhlanga was only commenting on the June period of loadhsedding and Eskom has been preparing the nation for a sustained period of loadshedding which will probably last until the end of the year.
“If this is the case, we then need to factor in how rotational blackouts are managed. At the moment, it looks as if these are mostly confined to residential areas which cushions industry. The announcement by President Cyril Ramaphosa to allow companies to produce their own electricity, lifting licencing restrictions from 1 MW to 100 MW is a massive reform. So we are seeing some glimmers of hope,” said Mhlanga.
But what happens if industries need more energy to recover from the Pandemic? What happens to remote workers who have been told by their companies that they can work from home? President Ramaphosa has introduced massive reform in terms of power production, but it will take these companies a minimum of a year to get to this position. What happens until then?
Photo By: Eskom
Basic economics
While Mhlanga does not expect this year’s loadhsedding to have the same impact as 2020’s, it does not mean that he didn’t have some strong words to Government and Eskom in terms of South Africa’s economic recovery.
“The energy crisis is a major constraint on economic growth. Economic growth is the creator of jobs. Without energy, it will be difficult to reinvigorate South African economic growth. Therefore, it is fair to say that in terms of us recovering from the Pandemic, the energy crisis is a binding constraint,” said Mhlanga who added that this also makes South Africa an unfavourable destination in terms of foreign investment.
Time will tell
Time will tell whether the energy crisis will have a telling impact on the economy in 2021. Significant warning signs have been spotted and we all know what needs to be done to avoid another massive economic contraction.
Is there political will to put aside the current infighting plaguing the ruling party in favour of focusing on issues of national importance? Who cares if the Health Minister voluntarily took special leave or if the President asked him to? The energy crisis is an issue of national importance; focus on resolving that.
