Load-shedding and underinvestment in renewable energy will continue to batter South Africa’s economic prospects, according to a new United Nations World Economic Situation report.
The report found that the country’s ongoing energy crisis will lead to a minimum economic growth of 0.5% in 2024, as well as by uncertain policies, failing railway systems and growing youth unemployment.
This undershoots the treasury’s forecast of 1% GDP growth this year.
The report on the global economic situation and prospects is a collaborative effort between the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development and the five regional commissions of the United Nations.
As load-shedding and freight situation deteriorate, the country’s fiscal condition is expected to continue downward, necessitating tax hikes and higher inflation rates, according to the report. This is as both Eskom and Transnet record a financial loss running into billions of rands.
“The economic outlook for South Africa remains clouded by debt, lingering inflation, and climate risks, compounded by uncertainties on the political front,” the report notes.
“As the country continues to be battered by fiscal challenges, high unemployment and low labour force participation among youth will remain a major challenge, with the country’s youth unemployment rate exceeding 60%.”
The electricity crisis at Eskom continues to be a headache for the treasury, which has had to bail out the utility to prevent it from buckling under its R399 billion debt.
To address the energy crisis, Eskom has reduced its monopoly by allowing the private sector to produce additional capacity for the power grid — prompting a boom in the renewable energy sector as new players enter the market.
But the report notes that, despite the renewable energy boom, investments in the industry have seen marginal growth since 2020, which is a concern for South Africa’s plans to move towards cleaner energy sources.
The share of renewable energy rose from 60% in 2020 to 62% in 2022 following a 15 percentage point increase from 2015 to 2020.
The move towards cleaner energy is part of the country’s plan to reduce emissions and the harmful effect of climate change on the world as part of the Paris Agreement. This international treaty aims to limit global warming to 1.5°C. The agreement also aims to strengthen countries’ ability to deal with climate change.
The World Economic Situation report said that in 2024, South Africa and other developing economies will continue to face problems when investing in climate and development goals while meeting their debt servicing commitments.
Many developing economies will also need more support to back public investment and protect the most vulnerable groups affected by climate change, the report added.
Because South Africa is a critical player in the Southern African economy, its economic performance continues to cause a ripple effect across the region. The economic growth in Africa is expected to increase from 3.3% in 2023 to 3.5% in 2024, the report said.
“The economic outlook for South Africa remains clouded by debt, lingering inflation, and climate risks, compounded by uncertainties on the political front.
“As the country continues to be battered by fiscal challenges, high unemployment and low labour force, participation among youth will remain a major challenge, with the country’s youth unemployment rate exceeding 60%,” the report said.
This assessment of South Africa’s economy comes as the country gears up for its sixth democratic elections. This year’s elections will also negatively affect the economy, with policy uncertainty remaining elevated.
The rand is expected to fluctuate during the election period, according to the report — which recommended that South Africa carefully design and communicate its policies to avoid triggering financial market instability.