South Africa’s critical electricity crunch has raised doubts over whether infrastructure can keep pace with an economic boom while the country prepares to host the 2010 Soccer World Cup tournament.
South Africa is gripped by traumatic power cuts that have brought the mining industry, mainstay of the economy, to a halt after the government ignored repeated warnings from state utility Eskom that major investment in power was needed.
Analysts said the country’s existing infrastructure was built for an economy growing at about 3,5% annually — and has been pushed to the limit during the last three years or so, when expansion has averaged 5,1%.
”When an economy’s momentum turns very quickly and unexpectedly much earlier than the spending and infrastructure taking place, you’re going to have capacity constraints draining the economy’s momentum,” said Brait Merchant Bank economist Colen Garrow.
”We’re actually knocking at full capacity already. We don’t really have an excess reserve to work with and if we’re going to take the economy to levels deep in the fives to sixes, we’re going to have to gradually move up our spending on infrastructure,” he said.
The government has vowed to resolve the power crunch, which has cast a shadow over South Africa’s hosting of the Soccer World Cup and could also discourage much-needed foreign capital.
But officials insist the crippling power crisis will not affect South Africa’s ability to host the tournament, with plans under way to place generators in all 10 stadiums that will be used during the soccer tournament.
Besides electricity, the country has also fallen short in expanding capacity in areas like roads and rail networks, and could also face a shortage of liquid fuels because local refineries are not producing enough for a healthy build-up of reserves.
”We don’t have a national transport plan as such and that is one thing that is concerning me,” said Global Insight senior economist Ronel Oberholzer.
”We also do not have extra capacity on the liquid fuel side. Refining is running at capacity, and if we should encounter any problems at any refinery, we would see significant problems,” she said.
Analysts believe infrastructure development will in coming years be key to continued economic growth as consumer demand, which has been the main driver to date, buckles under the weight of a restrictive monetary policy.
The central bank has hiked interest rates by a cumulative 400 basis points since June 2006 to curb mostly credit-driven household spending, which has helped fuel inflation.
”The consumption side of the economy, consumer spending and retail, has slowed down quite a lot, and we know now that big infrastructure projects are going to be the main drivers of growth,” said Russell Lamberti, economist at ETM.
The government plans to spend more than R400-billion on infrastructure over the next five years, but while the problems at Eskom might have sent a warning to the government to speed up the drive, the power blackouts are likely to hobble those efforts.
”The huge problem now … is that these programmes require electricity, so even if we wanted to accelerate our infrastructure programmes, we actually are constrained by electricity,” said Lamberti.
Growing economy
Meanwhile, the country’s power crisis is an ”unintended consequence” of the country’s growing economy, Jacob Zuma said at the University of Zurich on Monday.
According to a copy of his speech released by the African National Congress in Johannesburg, Zuma said: ”The strides we have made since 1994 in growing our economy and improving the quality of life of our people have brought along such a serious pressure on our energy sources.
”South Africans have in recent weeks, as you may have heard, experienced power o[cuts]. The government has declared a national electricity emergency to deal with the energy challenge.”
Zuma said that the government had called on all citizens to ”become part of a national movement to conserve electricity in their residential areas and workplaces whilst ensuring that key functions, safety and security are not compromised.
”While government admits that planning could have been better a few years ago, we must also appreciate that we have a growing economy that is working at full capacity.
”In addition, the rising standards of living, and the fact that close to 3,5-million homes now have access to electricity since 1994, have put increasing demands on our electricity utility Eskom,” he said.
Zuma said that the current crisis would not adversely affect the country’s ability to host the 2010 Soccer World Cup.
”We have been assured by the government and other key role-players that there is no threat to the 2010 Soccer World Cup spectacular as plans to ensure electricity security during that period are well advanced.”
Speaking about the high level of crime in the country, Zuma said that the government aimed to reduce serious and violent crime by ”7% to 10% per year”.
”There are various measures that are being put in place to achieve this and other crime-busting goals,” he said.
Speaking about the World Economic Forum, Zuma said that the South African delegation appreciated the opportunity to share their thoughts and experiences ”while also learning from others on how they deal with challenges similar or different from ours in their own countries.” — Reuters, Sapa