Strikes in the mining sector and the resultant drop in production took pressure off the electricity grid, helping to avoid the feared outages that kept investors at bay, HSBC economist David Faulkner has said.
This was confirmed by Eskom spokesman Andrew Etzinger who said the energy provider had experienced a "noticeable" drop in demand for power during the strikes.
The mining sector is one of the biggest consumers of electricity.
Faulkner, until recently the head of the treasury's macroecononomic policy and analysis unit and now an HSBC economist for South Africa and sub-Saharan Africa, said the delay in the construction of the Medupi power station and concern about the country's ability to meet immediate energy demands had discouraged investors and contributed to South Africa's slower growth.
"Energy constraints can lower the ceiling on how fast the economy can grow. Much of the recent slowdown reflects falling investment in the electricity sector, as industrial disputes, stoppages and delays had an impact on construction at Medupi, which would have provided more than 10% of current capacity.
"Since 2008, South Africa has run a very tight supply-demand balance in electricity with periodic power shortages. It limits the country's growth potential and could account for what we are seeing in terms of private sector fixed capital being so slow.
Slowdown takes strain off the grid
"The mining sector slowdown, despite having many other negative impacts on the economy, helped to take strain off the grid," he said.
HSBC, which this week released a South African purchasing managers index that looks at mining, manufacturing, services, construction and the retail sector, has been gathering data on the economy since 2011.
The index indicates that the economy stagnated at 2% in the first half of 2013, which led HSBC to cut its gross domestic product forecasts to 2% in 2013 and 2.7% in 2014. This would put it below that of the government, which foresees 3% growth.
The index, which rose from 49.8% in September to 51.5% in October, indicates promising signs in the fourth quarter of "slow, albeit probably modest growth".
However, Faulkner said that the present recovery had been "frustratingly slow" relative to the country's previous performance and other emerging markets.
He attributed this to global headwinds, domestic constraints, electricity shortages, production stoppages, high unemployment and rising labour costs.
Consumption boom places weight on wages
"South Africa had a consumption boom, which placed weight on wages rather than on employment, and fundamentally, there would have to be a moderation in wage costs, accompanied by an increase in productivity, if we are to see growth."
The lack of focus on employment had affected household consumption, which decelerated markedly since mid-2012, as disposable income slowed as a result of weak employment growth and rising inflation.
HSBC has revised its household consumption growth estimates in 2014 from 3.4% to 3%.
Consumer confidence is also at a decade-low, credit growth is moderating and household debt levels are at 75% of income, down somewhat from 80%, but still very high, which means South Africans are still not setting aside sufficient savings.
The country also felt the impact of strike-related disruptions in all sectors, with the third-quarter data showing growth, although slow, as strike action reduced.
The strikes in 2012 are estimated to have cost South Africa R15.3-billion.
Mining production drops
In mining alone, data released by Statistics South Africa in August shows that mining production dropped 6.2% year on year in June, as the sector struggled to recover from the labour strife in 2012.
Investment has also slowed. "Fixed-capital investment grew robustly in 2011 and 2012, but the private sector remains sluggish and public-sector investment effectively disappeared in 2013, despite the government's emphasis on infrastructure spending to leverage growth."
Faulkner pointed out that while South Africa was in the grouping known as the "fragile five", which includes Brazil, India, Indonesia and Turkey, which are all suffering lower growth, weak currencies and macro-economic imbalances, it had not hiked interest rates.
"HSBC believes interest rates will remain unchanged until 2015 because relatively contained core inflation and downside risks to growth preclude policy tightening."
While he believes South Africa still faces a number of challenges, the outlook for 2014 and the medium term is relatively "bullish".