Business & Industry Eskom

Power problem holds SA back from high growth

Ron Derby | 23 April 2013 | BDLive

IN EXASPERATION, the question I have often asked myself and anyone in a position to give some sort of answer is: can South Africa even dream of reaching growth rates above 7%? It’s only around these growth rates that we are told the economy can start creating enough jobs to alleviate the unemployment crisis.

Looking at the negative headlines about the domestic economy, it seems near impossible for Africa’s biggest economy to come close to the growth rates of rival emerging markets such as China.

But I was recently reminded that at some point the local economy was growing above 6%. We aren’t talking decades ago, it was about five years ago.

From 2002 to 2008, South Africa grew at an average of 4.5% year-on-year, the fastest expansion since 1994, and in 2008 we had quarterly growth of 6.5%.

It’s quite evident that South Africa, even with all its structural faults such as poor skills, can reach the required growth rates to make a dent in joblessness, albeit not dramatically.

From 2000 until 2012, the country’s unemployment rate averaged 25.49%, reaching a record high of 31.2% in March 2003 and a record low of 21.9% in December 2008, according to Trading Economics.

While some commentators and politicians may use some of this data to illustrate that the slowdown in the domestic economy is a result of factors outside of its control such as the global credit freeze that triggered the 2009 recession, it’s actually not that simple.

And Eskom’s warning of tight supply during the winter months on Monday reminded me of just how fast South Africa’s growth story came to a halt. Those 2008 January blackouts in the mining sector and the load-shedding that went on for much of that year did the most damage to South Africa’s growth and confidence levels. Mines and other industry halted expansion plans months before the Lehman collapse.

Over five years after that crisis that plunged mines into the dark, we are still faced with similar questions about the security of supply.

Brian Dames, Eskom CEO, has urged households to use electricity sparingly this winter as supply constraints were expected to put the national grid under "considerable" strain. Since last year‚ the grid has been under severe strain and the company has embarked on a race to ensure adequate supply.

The remarks helped push the rand to its weakest level in a month against the dollar showing that the country’s energy status remains a concern for investors. Supply constraints have a knock-on effect on the economy.

I’ll be the first to point out that the credit crunch, slower Chinese and US growth, falling commodity prices and sovereign debt crises in European nations have played a significant part in South Africa’s slowdown. But if it weren’t for problems with our own capacity, whether energy or the amount of commodities and goods we can ship out of the country any given day, our prospects wouldn’t be so bleak.

The fact that we are only fractionally better off energy wise than were in 2008 is the most disconcerting thing. What really derailed growth was the country’s clogged arteries. They remain so.


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