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    Home » Investment » Eskom load shedding sends economy into a tailspin

    Eskom load shedding sends economy into a tailspin

    South Africa’s economy shrank more than expected in the fourth quarter, when Eskom intensified rolling blackouts.
    By Prinesha Naidoo7 March 2023
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    South Africa’s economy shrank more than expected in the fourth quarter, when the state-owned power utility intensified rolling blackouts that continue to put a dampener on output.

    GDP contracted 1.3% in the three months to December, compared to upwardly revised growth of 1.8% in the previous quarter, Statistics South Africa said on Tuesday. That’s the biggest contraction since the third quarter of 2021, when deadly riots, looting and arson disrupted supply chains, industrial output and demand for manufactured goods.

    The median of 12 economists’ estimates in a Bloomberg survey was for a 0.4% slump.

    The blackouts are likely to continue for at least two more years as Eskom overhauls its fleet

    Eskom subjected the country to load shedding on all but three days in the fourth quarter. The company, which produces almost all of South Africa’s electricity, has struggled to meet demand since 2008, and has imposed severe outages every day this year to protect the grid from collapse.

    Sustained blackouts are seen as the most significant risk to economic growth.

    Economists in a separate Bloomberg survey predict a contraction in GDP in the three months to March, meaning the economy may already be in recession.

    The electricity crisis is costing the country as much as R899-million/day and will shave two percentage points off output growth in 2023, according to South African Reserve Bank estimates. It sees the economy expanding by 0.3% this year, well below national treasury’s growth estimate of 0.9%.

    Minister of electricity

    Economic growth slowed to 2% in 2022, from 4.9% a year earlier, Statistics South Africa data showed.

    President Cyril Ramaphosa named Kgosientso Ramokgopa as the minister responsible for overseeing the government’s response to the energy crisis in a cabinet revamp late on Monday.

    The blackouts are likely to continue for at least two more years as Eskom overhauls its electricity-generating fleet. It has repeatedly said an additional 4-6GW of electricity generating capacity are needed to end outages.

    The blackouts weighed on fixed investment spending in the final quarter of 2022, with private sector companies wary to commit large sums of money to domestic projects. Gross fixed capital formation, a measure of investment, rose 1.3%.

    Read: The Eskom bailout won’t end power cuts, but here’s what will

    Household consumption expenditure, which accounts for about two-thirds of GDP, grew 0.9% in the fourth quarter. Consumer spending is likely to be affected by rising food and fuel costs, load shedding price pressures and interest rates that have returned to pre-virus levels.

    Overall GDP expanded 0.9% year on year in the three months to December, Statistics South Africa said.  — (c) 2023 Bloomberg LP

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