Eskom sabotage, construction mafia and other criminal acts are eating into South Africa’s growth

Growing elements of criminality are eating into South Africa’s real GDP growth prospects and recovery from the devastating Covid-19 lockdowns, say economists at the Bureau of Economic Research (BER).

In a research note on Monday (22 November), the group pointed to the recent acts of sabotage at power utility Eskom which nearly plunged the country into stage six load shedding.

Eskom chief executive André de Ruyter said that the deliberate felling of a pylon damaged two coal feeding lines which could have caused the power station – which is South Africa’s most reliable – to be without coal within six hours triggering a consequent shut down.

“There have been allegations of late about possible coordinated action from former Eskom employees and state capture beneficiaries to destabilise South Africa’s power supply,” said the BER.

“According to this narrative, the ultimate aim is to force the current Eskom management out. If true, this adds another layer of risk to the local power supply.”

Outside of the electricity sector, the unprecedented theft of cable on strategically important export rail lines and the debilitating actions of the construction mafia are further examples where criminality has become a constraint on economic activity, the BER said.

“If left unaddressed, these acts will curtail South Africa’s real GDP growth prospects,” it said.

Ratings

The BER noted that credit rating agencies Moody’s and S&P Global were scheduled to update South Africa’s credit rating on Friday (19 November). However, both agencies refrained from pronouncing on the rating.

“This means that, for now, South Africa’s foreign currency ratings remain unchanged at three notches below investment grade (S&P Global) and two notches below in the case of Moody’s. The non-decisions are in line with our view that, in the foreseeable future, the ratings will remain unchanged.

“However, Moody’s rating does carry a negative outlook. This implies that they will probably need to decide on whether to upgrade the outlook to stable or to downgrade the rating, in 2022. This could happen after the February 2022 budget.”

South Africa would need to regain at least one investment-grade rating from either Moody’s or S&P to reenter the FTSE World Government Bond Index, potentially upping portfolio inflows and bringing down borrowing costs even further.


Read: Evidence of Eskom being destroyed from the inside: report

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Eskom sabotage, construction mafia and other criminal acts are eating into South Africa’s growth