Economists at the Efficient Group have published new data outlining the impact of load shedding on South Africa’s economy in 2019.
The group’s ‘cost of load shedding model’ considers GDP from the supply side and uses assumptions about the ability of an industry to mitigate the cost of downtime, said economist at the Efficient Group, Francois Stofberg.
“Certain industries and the businesses within it can relocate during times of load shedding to continue business as usual, others can use generators more cost-efficiently, and still others can shift production and even consumption patterns to a later stage,” he said.
“But it’s also true that industries, especially those where large corporates are present, find it more difficult to mitigate the cost of load shedding.”
Stofberg said that the group’s model further assumes an average downtime of seven hours a day – which is equivalent to something between stage 3 and 4 on a consistent basis.
“Using these assumptions, we find that the cost of load shedding has reduced our GDP growth by roughly 0.30% in 2019. This translates to R8.5 billion of real, inflation-adjusted rands,” he said.
“This value is much less than some estimates going around, but these estimates usually do not adjust for the ability of consumers and producers to change their trade-habits and therefore, often overstate the impact of load shedding.”
Low-growth environment
Understanding the cost of load shedding helps to explain why South Africa’s economy contracted by -0.6% during the third quarter of 2019.
Although this is not the only reason, it helps to explain why our economy is unable to lift itself out of a low growth environment, said Stofberg.
“It’s difficult to grow if there’s no power and even more so if producers perceive that there will be a lack of power.
“Businesses do well in an environment of consistency and are often reluctant to invest long-term capital in an unsure environment.”
Among those economies who have been struggling most in 2019, the agricultural sector once again went into recession, so too did the construction and transport, storage and communication sectors, said Stofberg.
“Luckily the trade (2.6%), finance (1.6%) and government (2.4%) sectors showed some growth. Considering the dismal performance of the third quarter’s GDP and the ongoing load shedding we’ve adjusted our 2019 GDP forecast down from 0.5% to 0.3%,” he said.
Shift in momentum?
Stofberg said that there has also been a ‘shift in momentum’ in recent weeks which could point to a silver lining for the county.
“In a somewhat surprising ruling, the South African Airways (SAA) was placed under business rescue. Although this doesn’t sound like a big deal, the implications of this action mean a lot South Africa’s future.
“By placing a state-owned enterprise that was previously considered ‘untouchable’, or to quote Tito Mboweni’s terms “a golden calf”, under business rescue means that others will most likely follow,” he said.
Stofberg said that being under business rescue means that a lot of the strategic authority is stripped from government and placed in the hands of a court-appointed business rescue team of experts.
“(This) gives us a lot of hope in terms of the restructuring of ailing SOEs. In doing so, another layer of protection against government inefficiency has been created,” he said.
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