Eskom woes dim SA’s growth by 10%
SOUTH Africa’s economy could have been 10 percent larger if power shortages had not stifled growth and investment and put the nation’s debt at risk of being cut to junk, economists’ estimates show.
Eskom, which supplies about 95 percent of the country’s electricity, is rationing supply because it cannot meet demand from aging plants following years of underinvestment. Its chairman stepped down last month after losing the board’s support over a decision to suspend the chief executive and three other top managers, leaving it without permanent leadership.
South Africa’s estimated economic expansion of 2 percent this year could have been at least 1 percentage point higher had it not been for the cuts, said Dawie Roodt, the chief economist at Efficient Group. Rolling blackouts have curbed mining and manufacturing, both knocked by strikes that limited 2014 growth to the slowest pace since a 2009 recession, and prompted rating downgrades.
Cash injection
“If we’d had enough electricity since 2007 and it was not a limiting factor, the economy could have been about 10 percent bigger than it actually was by the end of 2014,” Roodt said last week. “That is more than R300 billion, or more than a million job opportunities.”
The state-owned power utility’s struggle to meet demand started as far back as December 2005, when a loose bolt damaged one of the generators at its Koeberg nuclear plant near Cape Town.
Breakdowns and multi-year delays in bringing new generating facilities onto the national grid have since led to extended periods of scheduled blackouts.
The utility is trying to build new facilities to avoid a repeat of 2008 cuts that forced mines and factories to halt production for five consecutive days.
Eskom is struggling to plug a R225bn funding gap required to build new plants and maintain existing ones.
Finance Minister Nhlanhla Nene said in February the utility would receive R10bn in June, the first payment of a R23bn cash injection from the sale of state assets. The Treasury is reviewing an application by the power company to raise its prices by 25 percent.
“The government previously was focused on maintaining the sovereign rating at all costs but now, they must also be concerned of the feedback from Eskom into the sovereign,” Peter Attard Montalto, an economist at Nomura International, said last week.
Standard & Poor’s
(S&P) rates South African debt one level above junk and below the assessments of Fitch Ratings and Moody’s Investors Service.
S&P cut its evaluation in June, while Fitch lowered the outlook on its reading to negative that month. “The woes of Eskom are putting huge strain on the creditworthiness of the sovereign” rating, Nicholas Spiro, the managing director of Spiro Sovereign Strategy, said last week.
A report today will probably show manufacturing production shrank 1.5 percent in February. – Bloomberg