Load shedding outlook for 2023 sours

FNB senior economist Thanda Sithole says that he expects South Africa to suffer through at least 250 days of load shedding in 2023, predominantly at stage 4.

This is significantly higher than expectations from the South African Reserve Bank (SARB), which projected 200 days of outages at its Monetary Policy Committee briefing in January.

The 200 days of expected load shedding was a key factor in the SARB cutting South Africa’s GDP growth prospects for the year to just 0.3%. If the number of actual days exceeds this outlook, chances are the wider economy will undershoot that target as well.

According to Sithole, while the reality could surprise on the upside or the downside, FNB’s base case is for 250 days of load shedding, given the instability of Eskom’s grid and persistent unexpected power plant breakdowns and the scheduled planned maintenance.

South Africa has already experienced 40 days of load shedding in 2023 – every single day since the start of the new year – and has been in a state of near-permanent load shedding since September 2022.

Energy experts have pointed to load shedding in 2023 as being just as bad as in 2022, where the country experienced 207 days of outages, but with no end to the energy crisis on the horizon, analysts are constantly adjusting their predictions.

While Eskom and the national government have spurred some hope that grid relief will be coming by the middle of the year, it is generally accepted that load shedding will be a regular feature in the country for the next 18 months.

Sithole said that this baseline scenario spells bad news for the mining and manufacturing sectors in 2023.

Stats SA published mining and manufacturing output data for December 2022, showing a decline in both sectors over the period and the year as a whole.

December mining output was down by 3.5% year on year and 3.4% quarter on quarter (not seasonally adjusted), following a decline of 9.2% in November. Total output for 2022 declined by 7.2%, versus 11.6% growth in 2021.

“We expect aggregate mining output to decline further this year, although the extent of the decline is likely to be slower following an already sharp decline of 7.2% y/y in 2022,” Sithole said.

“While slightly improved global growth prospects and China’s recovery could somewhat support commodity prices and, to some extent, earnings, mining production and export volumes will likely be severely impacted by hard electricity shortages as well as port and rail inefficiencies.”

He noted that industries that have put load-shedding-mitigation measures in place, such as electricity self-generation, could perform modestly better.

December manufacturing output, meanwhile, was down more than expected and dragged on 4Q22 GDP growth.

Total manufacturing output (not seasonally adjusted) contracted by 4.7% year on year in December, following a downwardly revised contraction of 1.8% year on year in November.

The decline in December’s output was worse than the Bloomberg consensus prediction of a 3.6% y/y decline. Overall, manufacturing output declined mildly by 0.3% y/y in 2022, following growth of 6.1% y/y in 2021.

According to Sithole, the flat manufacturing numbers came despite the PMI business activity index signalling a monthly contraction amid hard power shortages in December.

“In our view, this reflects some resilience in the sector and that some measures to curb the impact of load-shedding are somewhat effective in some industries – but the overall situation remains precarious,” he said.

Load shedding will continue to add pressure to the sector in 2023, he said, while slowing domestic and external demand also does not bode well for the sector and the impact of supply chain disruptions from Covid-19 and the war in Ukraine lingers.

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