The latest round of load shedding is likely to have a heavy cost on South Africa’s economy – and may be the push that sees the country downgraded to junk status by credit agency Moody’s.
Bloomberg reports that while the impact of the latest round of load shedding is yet to be clearly outlined, estimates predict that the previous cost of the blackouts on the economy range from between R1 billion – R5 billion a day.
This was highlighted by South Africa’s Q1 GDP data, with load shedding contributing to the biggest economic contraction in a decade.
“If the current level of power cuts continue for the next week, it would equate to about 0.1% of economic growth being lost,” said Econometrix chief economist, Azar Jammine
“The damage that this is inflicting on the willingness to invest in the economy will be longer-term,” he said.
South Africa’s expected GDP growth rate for 2019 has already been cut by most agencies and banks, and is now projected at between 0.6% and 0.8% for the year.
Protracted outages could also cost the country its last investment-grade credit rating from Moody’s which is due to deliver its next assessment on 1 November.
The government has said it will announce plans to restructure Eskom into three operating units and reorganise its debt by the end of the month.
However, this may not be enough to appease the credit ratings agency and investors, some economists have warned.
“The timing isn’t great,” said Simon Harvey, a London-based currency analyst at Monex Europe Ltd.
“Whether this is a short-term reaction from Eskom to stem longer-term supply issues or is the start of a continuous process is key and will determine if the rand’s sell-off is more structural. Regardless, investors won’t take the news well.”