POWER: Load Shedding A Challenge For SA Weak Growth, Say Analysts

Investec economist Lara Hodes stressed the importance of effective implementation of policy reforms for a sustained increase in economic growth.

POWER: Load Shedding A Challenge For SA Weak Growth, Say Analysts - Surge Zirc S.A
S.A Power utility Eskom’s coal power plant/Photo file: Google

POWER – Load shedding may have a negative impact on the year’s economic growth, analysts have warned.Statistics South Africa on Tuesday released third quarter GDP figures, which reflects growth of 2.2%. This effectively means the economy has exited the technical recession.

Analysts have welcomed the rebound but have warned that the year’s growth will still remain weak. Fourth quarter GDP particularly will be impacted by load shedding, which has recently been implemented by power utility Eskom.

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“The short-term impetus we are currently seeing is encouraging, but may be negatively impacted by Eskom’s power generation capacity affecting economic output,” Reza Hendrickse, portfolio manager at PPS Investments, said in a statement.

Hendrickse also shared views that for 2018 the economy is unlikely to grow by more than 1%.

Maarten Ackerman, chief economist and advisory partner of Citadel similarly shared views that economic growth might not meet Treasury’s target for growth, announced in the medium-term budget policy statement. “Despite the positive growth seen this quarter, it will also remain a challenge for South Africa to achieve the 0.7% economic growth for 2018 forecast,” he said.

“With negative GDP growth of 2.6% and 0.4% in the first and second quarters respectively, we would still need a very strong final quarter to meet government’s expectations,” he explained.

Investec economist Lara Hodes stressed the importance of effective implementation of policy reforms for a sustained increase in economic growth. “The effects of perceived domestic political and policy uncertainty have weighed on sentiment and been a contributing factor to SA’s lacklustre economic performance,” she said.

FNB is keeping its growth forecast to 0.7%, said Jason Muscat, senior economic analyst. There are many obstacles ahead for the economy – this includes electricity supply, elections and pressure from ratings agencies, he explained.

Power Load shedding war room

Professor Raymond Parsons of North West University Business School is of the view that load shedding adds a new element of uncertainty for the growth outlook. “At the very time when SA is committed to boosting investor confidence, the impact of a lack of security in power supply might also have a negative effect on the positive investor sentiment and capital formation needed to support a higher growth trajectory,” he said in a statement.

Government and the private sector need to urgently find measures to minimise the economic damage caused by load shedding, he said. “The previous ‘war room’ created a few years ago between government, Eskom and business to deal with load shedding then may need to be reactivated to deal with the present power emergency,” Parsons suggested.

Business Unity South Africa CEO Tanya Cohen also shared views on the impact of load shedding on growth. “We are particularly perturbed about the situation at Eskom, with reference to the introduction of power outages and their negative impact on the economy, as well as the power utility’s dire financial position. We cannot afford a repeat of 2008,” she said in a statement.

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The organisation warned that there is no fiscal space to bailout Eskom or any other state owned enterprise. The statement from BUSA also indicated that the latest growth figures are a “false positive”, with key sectors in the economy remaining in distress.

“The economy is not picking up pace fast enough and point to a less than 1% annual growth rate for 2018. That is not enough for the country to lift itself out of the current economic slump it is experiencing,” the statement read.

BUSA also pointed out that ratings agencies have warned the country’s future sovereign ratings depends on economic growth on the economy’s ability to grow.

“Any bit of growth is welcome, but we caution against an unrealistic reading of what is an urgent situation in the economy,” said BUSA President Sipho Pityana.

“We know what the issues are and the time for talking is over, we have entered a phase where we need to act swiftly and decisively and make the necessary changes, reforms and interventions required on the economy,” he said.

Ruling party ANC also issued a statement on the figures, welcoming the news that SA exited a recession, but raised concerns that the economy is not growing fast enough.

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The main opposition party the Democratic Alliance also commented on the GDP figures, and suggested the increase in GDP will not bring lasting relief as overall growth for the year has been weak.

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