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    Load shedding leads to lower growth expectations, again


    September 19, 2022 - Siphelele Dludla

     

      South Africa’s ongoing energy crisis has dimmed hopes that the economy will rebound significantly next year as growth has already started shrinking.

      Eskom yesterday ramped up its rotational load shedding to Stage 4 until Thursday morning after promising it would ease it to Stage 2 for the rest of the week.

      Last month, Eskom warned that South Africa could face up to 27 days of load shedding in September, lasting all the way into September 2023, if unplanned breakdowns soar to 16 000MW.

      It currently has 5 446MW on planned maintenance, while another 16 985MW of capacity is unavailable due to breakdowns.

      The South African Reserve Bank last month forecast that the economy would expand by 1.3 percent in 2023 and by 1.5 percent in 2024, below the previous projection of 1.9 percent for both years.

      BNP Paribas South Africa warned yesterday that the intensified power cuts would result in economic growth slowing sharply in 2023 to a below-consensus level.

      BNP Paribas South Africa senior economist Jeff Schultz said they had cut their growth outlook after power cuts had affected economic growth in the second quarter.

      Schultz said this situation would be exacerbated by worsening external growth and activity environment, particularly in key trading partner countries/regions such as Europe, as fears of a global recession grip the markets.

      “We now expect the economy to only grow 0.8 percent in 2023 versus the 1.1 percent we previously forecast as a result of our long-held expectation for electricity supply cuts to worsen,” Schultz said.

      “Therefore, even though we are encouraged by the recent regulatory reforms in the energy sector, we don’t expect it to be meaningfully felt in South Africa’s growth and activity numbers until late 2024/25.”

      The struggling power utility said yesterday that electricity generation had deteriorated due to the sudden loss of three generating units at the Kendal power station.

      The breakdowns have resulted in intense usage of the pumped storage schemes and the open-cycle gas turbines which consume diesel.

      On Monday, Eskom revealed that it had already spent R7.7 billion, more than half of its annual budget, on diesel as emergency generation reserves to keep the lights on in the past six months.

      The utility admitted it would take time before the country reaped the fruits of President Cyril Ramaphosa’s emergency energy plan.

      The energy crisis was one of the biggest factors for the 0.7 percent contraction in South Africa’s real gross domestic product (GDP) in the second quarter.

      The renewed record levels of load shedding were most pronounced in the goods-producing economic sector, with significant negative contributors to growth recorded in manufacturing, agriculture, trade and mining.

      Anchor Capital investment analyst Casey Delport said this was largely attributed to record levels of load shedding experienced this year, which could have detrimental effects on job creation.

      “While the economy is stagnating, the population keeps on growing, which simply compounds the already present unemployment and social issues prevalent across the country,” Delport said.

      “Typically, in the local economy, material job creation has only occurred when GDP growth approaches 3 percent per annum. Thus, the SA economy is simply not growing at an adequate rate to sustainably boost long-term employment prospects for South Africans.”

      Deal Leaders International chief executive corporate and advisory Andrew Bahlmann, however, said they were seeing a number of businesses in mining and manufacturing responding to load shedding in true South African style to “make a plan”.

      Bahlmann said businesses had found power solutions that had resulted in them not being nearly as badly impacted by load shedding as they were three years ago.

      “We are finding that South African businesses in this range continue to present attractive targets to buyers, and their business performance has continued to improve,” he said.

      “An important insight is that international buyers are not being scared off by the Eskom issue, it seems. My belief is foreign investors are able to take a longer-term view and see beyond the current load shedding, which to us living here is such a burden.”

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