The sector is going through a fundamental structural adjustment, and not just a cyclical correction
and reached its peak in 2007, and the downswing has already lasted seven years. This means there may be another 10 to even 20 years of depressed markets left.
“Unplanned electricity outages have risen from 1% in 2005 to 15% today, and these can cost the sector production losses of up to 25%,” he adds.
“The SA Reserve Bank calculated that electricity shortfalls can cost the country 0.5 percentage points of gross domestic product growth, which means 25% lower growth.
“Most energy-intensive users are still consuming below their 2008 levels, and the opportunity costs of installing emergency and standby capacity is a staggering 35% of all investment in the sector in 2013.”
Noting that it took 10 years for energy supplies to reach this constrained point, he predicts that “current instability is likely to last for two to three years”.
Langenhoven says only the vehicle-manufacturing sector shows growth thanks to exports, while both the mining and construction sectors are limping along at pedestrian growth rates, if at all.
“The consequences of the rise of China and India, as well as the structural adjustments taking place in those economies, will be significant,” he explains.
“There are massive surpluses generated in those markets, which find their way on to the world market.
“The current rebalancing taking place will shift their input-demand patterns downward permanently. Demand out of Africa could decline in sync, owing to its dependence on Chinese demand for its commodities for its own growth.
“The locomotive power of the Chinese economy of the past 20 years will not be repeated. The metals and engineering sector – with its symbiotic relationship with the auto, mining and construction industries – is going through a structural correction on its development trajectory.
“Innovation in terms of business solutions, better social cohesion between business and labour, and policy adjustments from government are urgently needed to prevent the sector from withering away.”