Indicator shows load-shedding weighs on quarterly growth

● Numbers suggest third-quarter GDP may grow at a much smaller percentage than initially anticipated

Business activity was under significant pressure in July, falling the most in 10 months, as SA grappled with load-shedding which sometimes reached stage 6, data from the Reserve Bank showed on Tuesday.

The bank’s composite leading business cycle indicator, which offers a projection of SA’s economic growth cycle for the next six to 12 months, fell 1.0% month on month, as six of 10 components of the indicator fell and only four increased.

The numbers suggest that third-quarter GDP may grow at a much smaller percentage than initially anticipated.

This is bad news for SA’s growth efforts especially after a second-quarter GDP contraction of 0.7%.

Bank data shows that the largest negative contributors to the business cycle indicator were a decline in the number of residential building plans approved, a decrease in the composite leading business cycle indicator for SA’s main trading partner countries and the commodity price index for SA’s main export commodities.

In contrast, the largest positive contributors were an acceleration in the six-month smoothed growth rate in new passenger vehicle sales and a widening of the interest rate spread.

The three months to the end of September have been afflicted by heavy load-shedding.

In 2022 the electricity availability factor dropped to below 60% — worse than 2021 when a number of challenges including riots and looting in KwaZulu-Natal and Gauteng hindered economic activity and the country moved back into lockdown sparked by the Delta wave of Covid-19.

The second week of September’s electricity availability factor reading was a low 56.7%, meaning the country was only able to use 56.7% of its total capacity to produce electricity.

SA has an aged fleet of power stations requiring heavy maintenance, while poor build, technical and design flaws at Medupi and Kusile add to the outages as units trip frequently, taking power off the grid, along with units at Kriel, where the entire power station tripped in July.

“Overall, these factors contributed to weakening the business confidence reading and subdued employment creation as job advertisements fell,” Investec chief economist Annabel Bishop said.

“This week, the economy most likely ran closer to half its electricity production ability.

“The negative effect on economic activity means SA is now at risk of economic growth of significantly less than 2% this year if load-shedding continues indefinitely in the remainder of this year, as Eskom currently warns.

“This means quarter three GDP is now at risk of seeing less than a 0.5% growth rate in GDP,” Bishop said.

She said the poor performance of SA’s power supply was worsened by reported regulatory requirements at the National Energy Regulator of SA and the municipalities that impede private generators’ ability to supply to the grid, with related high costs for residential solar panels disincentivising users.

Excess red tape and costs add to the electricity crisis.

“The overall mix of energy actions was not expected to resolve the crisis in the short term.

“However, some domestic electricity supply was planned to be purchased immediately by scrapping the limit on selfgeneration, but the requirement to register connections to the grid of self-generation up to 100MW persists, and is subject to regulatory blockages.

“This has included slow processing times, worsened by red tape,” she said.

This week, the economy most likely ran closer to half its electricity production ability