MIKE BROWN - Power crisis a chance to invest, says Nedbank

MIKE BROWN Power crisis a chance to invest, says Nedbank

Power crisis a chance to invest — Nedbank

Nedbank boss says SA's power crisis could "crowd in" private investment into an electricity sector that is keeping GDP growth anchored at about 1.5%

Investment WriterThe electricity crisis that is threatening to sink SA’s economy further into the abyss of low growth and high unemployment is an opportunity as much as a challenge, which could encourage more private investment into the power sector.

That is the view of Nedbank CEO Mike Brown, who spoke to Business Day from Davos, Switzerland, just minutes before an SA-specific session was due to kick off at the World Economic Forum’s annual conference.

However, Brown said it was critical that SA rapidly demonstrate the capacity to resolve the power crisis as failure to do so would deter new investors from deploying much-needed capital to the country.

"In the electricity challenges themselves are investment opportunities," he said.

"We never should have got to where we are with respect to energy and Eskom — a state monopoly that is too big to fail actually failing — but given where we are, and given the global transition to cleaner energy, with the implementation of suitable policy changes, financing improved energy security and the green transition presents … multiple investment opportunities."

SA is suffering power cuts for up to 12 hours a day after years of underinvestment, corruption, and mismanagement at Eskom, rendering the state power utility incapable of delivering a stable power supply from its ageing fleet of coal-fired plants.

So severe are the power cuts that President Cyril Ramaphosa cancelled his trip to Davos to deal with the crisis.

"Many [investors] will be watching very carefully as to our ability to actually deliver on the plan to resolve the electricity crisis," said Brown. "As they hopefully begin to see some progress on that delivery, that would then enable them to reassess investment decisions."

Nevertheless, Brown cautioned that SA faces "tough economic challenges ahead", which have prompted Nedbank to forecast just 1.5% GDP growth for 2023.

With the IMF expecting global growth to slow to 2.7% in 2023, down from 3.2% in 2022, the local economy will struggle to create the jobs needed to alleviate the country’s chronic 32.9% jobless rate.

"There are headwinds to global growth … and on top of that we have the own goal of our electricity challenge," he said. "It’s just simply not possible to have an economy growing much more than about 1.5%. Unfortunately, that is our reality until such time as we are able to resolve the electricity crisis."

DETER

Brown said that while investors familiar with SA continue to recognise its long-term potential thanks to its vast mineral wealth and world-class tourism and financial sectors, the electricity shortage was likely to deter potential new foreign investors from deploying capital to the country.

"Until such time as we’re able to display better progress in resolving those challenges, I think new investors will largely sit on the fence and watch and wait," he said.

"That’s the natural thing that capital will do, particularly for new investors.

"Obviously, people who have existing businesses will continue to invest in those existing businesses to ensure that they can grow notwithstanding the difficult circumstances."

When asked about what he would recommend SA do to address the power crisis, Brown said the country should simply focus on the effective implementation of its existing power plans. SA’s national energy crisis committee, which is run out of the presidency, announced on January 16 an emergency plan to end loadshedding through a plethora of measures ranging from faster approval to the development of new power plants and encouraging more private investment.

"We have very credible plans in place already to resolve the crisis," he said. "I don’t believe we need new plans. What we need is a laser-like focus on the delivery of the plans we currently have."

theunisseng@businesslive.co.za