South Africa’s woeful economic performance boils down to one key factor — a lack of electricity. That’s according to Harvard University professor Ricardo Hausmann.
About two decades of power cuts, exacerbated by government’s inability to make decisions and its adherence to hidebound ideology, have deindustrialised what was once a promising economy, said Hausmann, who has advised the South African government and studied the country for two decades.
While deindustrialisation is a global phenomenon, “the speed at which this has happened in South Africa since the global financial crisis of 2008 is orders of magnitude worse than anywhere else”, he said in an interview with the Johannesburg-based Centre for Development and Enterprise, a transcript of which was released on Monday. “We found very strong evidence that this decline was strongly linked to the collapse in electricity provision.”
Hausmann, who head’s Harvard’s Growth Lab, paints a picture of a country facing self-inflicted problems that have resulted in its citizens becoming progressively poorer. The government hasn’t been punished for its slow decision making because, with one dominant party, there’s been little political consequence for the collapse of state services, he said.
An ideological view that the state should lead the economy has also hindered pragmatism, he added.
“On any economic benchmark you could choose, the performance of South Africa has been lousy,” Hausmann said. His observation is backed up by the government’s own data — the economy has expanded by less than 2% every year for the past decade and the unemployment rate stands at around 32%.
Eskom
The country has been dogged by rolling blackouts since 2008, because state-owned Eskom didn’t properly maintain its power plants and there was inadequate investment in new capacity. While Chile and Colombia worked their way out of electricity crises relatively rapidly, it took until 2022 for South Africa to allow private sector investment in generation and permit the direct purchase of power by municipalities.
Hausmann listed a number of other impediments to economic growth, including poor commuter transport, corruption and an aversion to the import of foreign skills.
Read: Eskom in dire straits
“South Africa cannot prevent its talented people from leaving, but it is preventing talented people from the rest of the world from getting in, and it does so at an enormous cost,” he said, adding that he raised this concern as far back as 2004. “It has been impossible to change.” — (c) 2024 Bloomberg LP
