Re­ces­sion: Lack of gen­er­a­tion ca­pac­ity at heart of SA’s cri­sis

Nec­es­sary reg­u­la­tory ap­provals haven’t been forth­com­ing de­spite pres­i­dent’s as­sur­ances

Pretoria News - - BR | FOCUS - BU­SISIWE MAVUSO Bu­sisiwe Mavuso is the chief ex­ec­u­tive of Busi­ness Lead­er­ship South Africa.

TWO RE­CES­SIONS in less than two years and a sixth con­sec­u­tive year that South Africa’s econ­omy has grown be­low 2 per­cent – that’s the pic­ture of this coun­try fol­low­ing news that the econ­omy shrank by 1.4 per­cent in the fourth quar­ter last year and grew only 0.2 per­cent in 2019.

It’s an un­der-per­for­mance dur­ing which, for the most part, the world’s lead­ing economies such as the US, Ger­many and China have re­ported ro­bust growth.

That was the story of the past decade.

It was a pe­riod for us that was marked by many of our own goals, par­tic­u­larly en­ergy in­se­cu­rity, pol­icy un­cer­tainty and ris­ing cor­rup­tion lev­els best en­com­passed by the era of “state cap­ture” that still en­snares our econ­omy. This in an emerg­ing mar­ket econ­omy more at­tuned to the de­vel­oped world’s prospects than oth­ers.

Yet we missed an op­por­tu­nity to fully ben­e­fit from the de­vel­oped world’s re­cov­ery from the global re­ces­sion more than a decade ago.

But as we get deeper into the year, it’s clear that this de­vel­oped neigh­bour­hood, which could have been so sup­port­ive to our growth in years past, is now look­ing at a very dif­fer­ent fu­ture.

This week, the US Fed­eral Re­serve sur­pris­ingly cut in­ter­est rates in re­sponse to fears about the im­pact of the coro­n­avirus.

It was the first emer­gency cut since the global fi­nan­cial cri­sis and comes after G7 fi­nance min­is­ters and cen­tral bankers pledged to take all ap­pro­pri­ate mea­sures to en­sure the health of the ad­vanced world.

Aus­tralian and Malaysian cen­tral banks also cut their main pol­icy rates this week.

In this en­vi­ron­ment, we have to be won­der­ing just where our strug­gling econ­omy is go­ing to get the tail­winds to get us above the measly 0.2 per­cent growth rate of last year.

It’s un­likely to come from eco­nomic con­di­tions in the West. We are go­ing to have to fo­cus on our struc­tural re­forms and it starts with our en­ergy ca­pac­ity con­straints.

We of­ten talk of struc­tural re­forms, which en­tail a long to-do list for pol­i­cy­mak­ers. But were we to sin­gle out one step of that en­tire process, it would be to deal with the con­straints at Eskom.

In both our third and fourth quar­ters of last year, load-shed­ding was a core rea­son for the con­trac­tion of the econ­omy.

We have to lift the own-gen­er­a­tion limit to, say, 20MW, while so many more busi­nesses would be able to cre­ate gen­er­at­ing plants very quickly if given the green light. That would ease the strain that Eskom’s bouts of load-shed­ding have been hav­ing on the econ­omy.

These power projects could be rapidly started from so-called em­bed­ded gen­er­a­tion, rang­ing from small-scale rooftop so­lar gen­er­a­tion to util­ity-scale gas and com­bus­tion gen­er­a­tors.

Min­ers could build be­tween 500MW and 1 500MW of their own gen­er­at­ing ca­pac­ity over the next few years if reg­u­la­tions were eased.

Sa­sol has a gas en­gine power plant and uses only half its 140MW ca­pac­ity – the rest was in­tended to be fed into the grid, but it hasn’t been able to con­nect.

We have now been warned by Eskom that this pe­riod of load-shed­ding might con­tinue for per­haps as long as two years as the power util­ity fi­nally seeks to get on top of its main­te­nance back­log at power plants, some of which are near­ing 50 years old. This is un­avoid­able.

Should the grid ever col­lapse, let me re­mind all po­lit­i­cal play­ers that it would take weeks to re­cover and would send the econ­omy into a deeper re­ces­sion that would make the past five years a walk in the park in com­par­i­son.

Still, we can no longer af­ford to have our econ­omy con­strained by this un­avoid­able en­ergy short­fall.

Moody’s In­vestor Ser­vices is in town and I am cer­tain it is pos­ing many ques­tions of both our pol­i­cy­mak­ers and big busi­nesses about our growth prospects.

Con­sid­er­ing all these global growth fears about, ours must be a des­per­ate tale for the vis­i­tors. Wor­ry­ingly, at the end of this month, Moody’s could cut the fi­nal thread that has our coun­try hang­ing on to an in­vest­ment grade credit rat­ing.

Growth is our big­gest cri­sis and in­te­gral to that is the lack of ca­pac­ity of the now 97-year-old Eskom. Al­low­ing house­holds and some of our large cor­po­ra­tions to pro­duce en­ergy is a course that we should have started a long time ago.

There’s an ur­gent need for ad­di­tional ca­pac­ity. But the nec­es­sary reg­u­la­tory ap­provals have not been forth­com­ing de­spite as­sur­ances by Pres­i­dent Cyril Ramaphosa that this is a path that his ad­min­is­tra­tion has cho­sen.

The Depart­ment of Min­eral Re­sources and En­ergy must un­leash this new gen­er­a­tion ca­pac­ity as fast as pos­si­ble. It is the quick­est way to in­crease elec­tric­ity sup­ply and would re­quire no in­vest­ment from the gov­ern­ment or Eskom. There are an es­ti­mated two gi­gawatts of power gen­er­a­tion out­side Eskom just wait­ing for sig­na­tures and ap­provals from the state.

Grant­ing the ap­provals would make an im­me­di­ate con­tri­bu­tion to sta­bil­is­ing the grid.

This would im­me­di­ately an­swer the more im­me­di­ate and press­ing ques­tion of an elec­tric­ity sys­tem that at the mo­ment can’t meet de­mand in the coun­try. It would also pro­vide some breath­ing room for Eskom to be­come an op­er­a­tionally sound in­sti­tu­tion.

As a mo­nop­oly, Eskom con­tin­u­ally re­minds us that it is our great­est growth and sov­er­eign risk. The lat­est gross do­mes­tic prod­uct data reaf­firm what we al­ready know.

Sup­plied

BUSI­NESS Lead­er­ship South Africa chief ex­ec­u­tive Bu­sisiwe Mavuso sug­gests that min­ers could build be­tween 500MW and 1 500MW of their own gen­er­at­ing ca­pac­ity over the next few years if reg­u­la­tions were eased. I

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