Double blow for South Africa as load shedding tears through the economy

Continued load shedding is setting South Africa up for a double blow in data releases for the current quarter, as both jobs and GDP data for the third quarter are looking worse for wear.

Eskom is currently engaged in its longest streak of load shedding, with rolling blackouts expected at stage 3 for the rest of the week and no end in sight at the power utility struggles to stabilise its plants.

Warnings are coming from various industries over jobs as a result of the blackouts, the Bureau for Economic Research said in a note on Monday (3 October).

The mining sector, in particular, said that it cannot sustain operations at stage 4 load shedding, which directly impacts jobs in the industry.

“There was already bad news on the local job front last week as formal sector employment declined in 2022Q2,” the BER said. “While it was likely largely the end of census worker contracts that weighed on public sector jobs, the picture for private sector employment was also not inspiring.”

The latest data from Stats SA’s Quarterly Employment Survey showed that South Africa’s formal sector shed close to 120,000 jobs in the last quarter – standing in stark contrast to the more positive data from the Quarterly Labour Force Survey, which showed unemployment reduced by 0.6 of a percent.

The key difference in the data, the BER said, is that the QLFS takes place at the start of the quarter, and the QES happens at the end – which means many of the people who were employed at the start of Q2 may have ended up losing their jobs by the end of the quarter.

“According to the QES, almost all job losses were in the government sector (-93 000), likely largely driven by the termination of part-time contracts of census workers, who might have still been employed at the time of the QLFS,” it said.

In the private sector, business services (-15,000), construction (-13,000) and manufacturing (-12,000) shed the most jobs. There was some job growth in trade (+17,000) and mining (+4,000).

Impact on GDP

The reframing of the job reality in the second quarter comes as the country recorded a decline in GDP over the same period, which economists have directly attributed to load shedding.

During Q2, Eskom was forced to implement stage 6 load shedding for the first time in 2022 after workers went on an illegal strike, disrupting operations at many power stations. Even once the worker dispute was resolved, high stages of load shedding lasted for weeks, with the power utility forced to adopt a timetable of load shedding at various stages to stabilise the grid.

Given that Eskom is now load shedding at record levels – with its energy availability factor at its worst rate in history – economists expect third quarter GDP data to suffer as a result.

The financial impact on the economy varies from analyst to analyst and ranges from R250 million to R1 billion per stage per day.

“September was by far the worst month of the year in terms of the cumulative amount of load-shedding. Not only did we have 25 straight days of load-shedding, but many of these days also saw rolling blackouts at higher stages,” the BER said.

“The higher stages of load-shedding seem to have an amplified negative impact on production and the South African economy as a whole.”

The South African Reserve Bank, at its September Monetary Policy Committee, revised its economic growth outlook for 2022 lower as a result of load shedding and other weakening economic indicators.

The SARB said that growth in Q3 and Q4 2022 is now forecast lower at 0.4% (down from 0.7% in July) and 0.3% (down from 0.4% in July), respectively.

A country’s real GDP and employment are fundamentally intertwined and have a historical relationship, said professional services firm PwC in a new jobs report.

PwC has revised South Africa’s GDP growth downward to 1.5% as a result of the country’s fundamental and structural constraints. The failing national power utility Eskom has placed significant pressure on the country’s GDP, it said.

At an expected GDP growth rate of 1.5% per annum, employment – comprising both formal and informal jobs – will only grow at a rate of 1.2% every year, it said, which will not produce enough jobs to sustain a growing population.

Read: Eskom announces stage 3 load shedding for the week ahead – here is the schedule