South Africa’s economic growth could slump below 1% in 2023, slashing all the gains and recovery made since the Covid-19 pandemic as a result of severe power cuts, which continue to cripple productivity.
This was a warning from ratings agency Moody’s Investors Service yesterday as Eskom’s rotational power cuts remained elevated at Stage 4 amid an absence of an energy security plan from the government.
Moody’s vice-president senior credit officer, Aurelien Mali, yesterday said gross domestic product (GDP) in South Africa was now likely to track below their previously downward growth forecast of 1% in 2023.
This outcome would be significantly lower than the National Treasury’s downwardly revised growth forecast of 1.6% and the 1.1% growth earmarked by the SA Reserve Bank in 2023.
Mali said the multiple breakdowns at Eskom’s power stations responsible for record levels of load shedding were going to endure and cripple any marked activity.
“Daily rolling power cuts are likely to further erode the country’s weak economic growth, representing downside risk to our 1% growth expectation for 2023,” Mali said.
“In fact, South Africa is one of the few emerging markets that has seen its annual electricity production contracting over the last six years, which indicates the poor state of the electricity sector.”
The struggling power utility has plunged South Africa into darkness since the year began due to a number of unplanned breakdowns of its ageing coal fleet.
The indefinite declaration of power cuts of up to 12 hours a day is extremely damaging to businesses and the economy.
President Cyril Ramaphosa on Monday convened a meeting of political parties represented in Parliament, the Eskom board and the National Energy Crisis Committee to address the ongoing power cuts after he cancelled his trip to the World Economic Forum in Davos.
A number of organisations have written to the government threatening legal action if load shedding is not ended with immediate effect, while others want to challenge the high electricity tariff which will be hiked by 18.65% from April to boost Eskom’s balance sheet.
In his Budget Speech next month, Finance Minister Enoch Godongwana is expected to announce a resolution about the government's commitment to shoulder the lion’s share of Eskom’s R400 billion debt.
However, Mali said though a partial debt transfer to the government would improve Eskom’s balance sheet and reduce pressure on cash flows through lower interest payments, details were lacking, and there were risks to execution.
“Also, debt relief cannot of itself address multiple complex issues, including the poor operational performance, the lack of cost-reflective tariffs and rising overdue debt from municipalities,” Mali said.
“Despite South Africa’s ambitious Just (Energy) Transition Plan for cleaner energy, there is still a lot of uncertainty concerning the reform. Moreover, independent producers will take time before reaching critical mass to stabilise the energy supply.”
The Allianz Global Corporate & Speciality yesterday also pointed out that the energy crisis in South Africa was the biggest risk riser.
The Allianz Risk Barometer 2023, which surveyed 94 countries, showed that critical infrastructure blackouts and cyber incidents were top threats in South Africa as energy crisis and natural catastrophe risks rise.
The business sector expressed concern that the energy crisis has forced some energy-intensive industries to move production to alternative locations or even consider temporary shutdowns.
The resulting shortages threaten to cause supply disruption across a number of critical industries, including food, agriculture, chemicals, pharmaceuticals, construction and manufacturing.
The Steel and Engineering Industries Federation of Southern Africa (Seifsa) yesterday said the level of the crisis and the risk to the economy required a response as aggressive as the response to the Covid-19 pandemic.
Seifsa’s chief operating officer, Tafadzwa Chibanguza, said a very concerning long-term implication was emerging, apart from the fact that the energy crisis detracted from the investment attractiveness of South Africa.
“Companies are sacrificing long-term capital that could otherwise be invested in expanding their operations and are spending these scarce resources in pursuit of immediate survival,” he said.
“The long-term implications will be a continued structural decline in the performance of the metals and engineering sector, which has already been tracked at a rate of 1.6% on a compound annual basis since 2008.
“Employment in the sector, especially among women and youth, has contracted at the same pace over the same period, contributing to the socio-economic calamity that the country already faces.”
BUSINESS REPORT