Alarms over stage 10 load shedding leave the rand reeling

The rand has been rattled by global risk aversion, coupled with warnings from the minister of electricity Kgosientsho Ramokgopa that the country is facing a massive energy shortfall in the approaching winter months in South Africa.

The rand has traded weaker in increasingly risk-averse markets, with the domestic currency weakening to R18.62 to the dollar on Friday, and pulling back modestly on Tuesday (11 April) to around R18.30.

According to Investec chief economist Annabel Bishop, the risk-off environment is being driven by both global and local factors.

On the global front, warnings over poor worldwide production have put a damper on sentiment. Locally, the energy crisis – with no solution in sight – is keeping investors at bay.

“On Thursday the IMF said global economic growth is likely to remain at around 3% for the next five years, its lowest medium-term growth forecast since 1990, and well below the average growth of 3.8% seen in the past two decades,” she said.

As a result, growth prospects remain weak given persistently high inflation. Bank failures in the US and Switzerland have added to the market anxieties, she said.

Further warnings on global growth are also emanating from “geopolitical fragmentation”, driven by tensions between the US and China. These risk damaging the global economy, with foreign direct investment and other capital increasingly being channelled toward aligned blocs of countries.

Domestically, South Africa continues to struggle with persistent load shedding, with power utility Eskom pushing outages back to stage 5 following the Easter weekend break.

Bishop said that allegations from Eskom whistleblowers, including former CEO Andre de Ruyter, are blaming the issues on “widespread sabotage, criminality, and destructive and unlawful industrial action”.

Meanwhile, the new electricity Minister, Kgosientsho, has taken a different narrative, putting the blame on technical and operational issues, particularly in Eskom’s coal fleet.

Regardless of the source, the fact remains that South Africa’s power issues persist, and Ramokgopa warned last week that up to stage 10 load shedding could hit this winter, given the current capacity constraints.

“Ramokgopa said ‘now we are entering winter, which is going to be a very difficult period. The numbers suggest that historically the average [demand] is about 35,000MW, but it can go up to 37,000MW’,” Bishop noted.

On average, Eskom can guarantee us about 27,000MW, and peak demand in summer is about 32,000MW. The gap between the guaranteed and expected winter demand is around 10,000MW, which is roughly equivalent to 10 stages of load shedding, given Eskom’s calculations of 1,000MW per stage.

“Higher demand will widen the gap in the electricity shortfall, negatively affecting economic growth and investor demand,” Bishop said.

“There is still no solution in sight to South Africa’s ongoing electricity crisis, as the Karpowership gas to power (electricity) provision continues to be blocked by South Africa’s Department of Forestry, Fisheries and the Environment (DFFE).

“Eskom is now reported to be considering the purchase of electricity from a Karpowership plant located offshore from Mozambique, although only 1,000MW worth, and wholly insufficient to stop load shedding, or its escalation,” she said.

The economist noted that thin trading conditions around Easter have exacerbated the negative impact of bad news on the domestic currency, with a number of negative factors afflicting the rand
last week.

This week, market attention will turn to tomorrow’s US CPI and core data, she said.

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