Economic effects of load-shedding hit home

The shock of Eskom’s load shedding has finally hit home, even as the China and terms-of-trade shocks are only starting to build, said Nomura analyst and emerging markets economist Peter Attard Montalto.

While Eskom has not enforced load-shedding for the past 17 days, the 99 days of load-shedding it has implemented in 2015 so far has caused manufacturing and mining output to decrease, Stats SA figures show.

Montalto said Africa’s most industrialised country, whose gross domestic product (GDP) contracted by 1.3% in the second quarter of 2015, was behaving economically “like it had lost a major industry”.

“This is the impact of Eskom load-shedding,” he said.

Eskom’s expenditure breakdown, which will be published in September, will show the impact it had on the domestic private-sector investment, real rates and inventories and if it was felt through the whole economy, said Montalto.


Severe stress
Turning to agriculture, Montalto said the shock to the sector was particularly large because the drought in some areas of the country had spilt over from the first quarter, with the intensifying impact of a second quarter of poor harvests.

The mining industry reflected severe stress, which will eventually “filter through to conflict with the government and eventual substantial job losses from some mineral industries”, said Montalto.

The fact that finance – and business services – remained the strongest sector was a key signal “that the low-job multiplier, highly skilled jobs sectors do fine in South Africa with an almost separate ‘doing business’ bubble in that area versus manual and unskilled industries not able to perform”.

This, Montalto said, is fundamentally the wrong way round for solving the country’s jobs crisis.

He said the weaker rand, currency volatility and in turn food prices will keep the Reserve Bank ready to hike in September, although the probability has fallen slightly to 60% from 65%.

Montalto downgraded his growth forecast for the year to 1.6% from 1.9%, for 2016 to 2.1% from 2.3% and 2017 to 2.6% from 2.8%. Although he expects a recovery in the eurozone and the US to affect the domestic economy, he said South Africa would not take proper advantage of rand weakness to boost net exports.

Montalto said “wage increases over productivity and the inflating away of any competitiveness that could be gained, and sluggish foreign direct investment in recent years” will all play a part in this.

Risks likely to have a negative effect on growth in 2015 and 2016 include strike action and future global shocks to come, although these are difficult to factor in, said Montalto.

Two factors that could reduce the forecast further are intensified load-shedding and a strike in the gold sector towards the end of the year.

“South Africa is having serious growth issues in what was meant to be an ‘OK’ quarter. The national treasury understands this, even the ANC understands this. However, it and the government are unable or unwilling politically to take difficult measures to correct it,” said Montalto. – News24.com

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Sudan’s government gambles over fuel-subsidy cuts — and people pay the price

Economists question the manner in which the transitional government partially cut fuel subsidies

The solar energy market will grow if innovative business models are developed

Southern African suppliers should consider entering into partnerships with financiers to offer off-grid, hybrid and prepaid solutions to customers

Eskom’s emissions are not compatible with the South African constitution

The government must not cave to Eskom’s demand that it be exempt from air pollution rules. Furthermore, the power utility needs to stay true to the principles of its own just transition strategy

Ramaphosa: We want investment pledges to translate into new jobs

To move out of South Africa’s economic funk, Ramaphosa is prioritising the materialisation of pledges made at the previous investment conferences.

Fossil fuel support lands SA in the G20 dog box

South Africa has been ranked the second worst performer of the G20 non-OECD member countries, behind Saudi Arabia, for its lack of transparency and continued support for fossil production, fossil-fuel based power and consumption of fossil fuels

Angola’s president squanders his early goodwill

Angolans lose faith in João Lourenço as the economy tanks and corruption persists
Advertising

Subscribers only

Covid-19 surges in the Eastern Cape

With people queuing for services, no water, lax enforcement of mask rules and plenty of partying, the virus is flourishing once again, and a quarter of the growth is in the Eastern Cape

Ace prepares ANC branches for battle

ANC secretary general Ace Magashule is ignoring party policy on corruption-charged officials and taking his battle to branch level, where his ‘slate capture’ strategy is expected to leave Ramaphosa on the ropes

More top stories

Journey through anxious Joburg

A new book has collected writing about the condition of living, yes, with a high crime rate, but also other, more pervasive existential urban stresses particular to the Global South

Football legend Maradona dies

The Argentinian icon died at his home on Wednesday, two weeks after having surgery on a blood clot in his brain

Why no vaccine at all is better than a botched...

As Covid vaccines near the manufacturing stage, a look at two polio vaccines provides valuable historical insights

Under cover of Covid, Uganda targets LGBTQ+ shelter

Pandemic rules were used to justify a violent raid on a homeless shelter in Uganda, but a group of victims is pursuing a criminal case against the perpetrators
Advertising

press releases

Loading latest Press Releases…