South Africans are poorer than 20 years ago
Recent statistics reveal that South Africa’s per capita GDP is lower than it was almost 20 years ago, and is now below 2007 levels, largely due to the collapse of the energy system.
After joining BRICS in 2010, the country was expected to continue expanding rapidly, becoming a beacon of the emerging world.
However, Coface economist Aroni Chaudhuri said South Africa has underperformed every other emerging economy since 2010.
A country’s average economic output per person is calculated as its per capita GDP. This metric is derived by dividing the country’s gross domestic product (GDP) by its total population.
Per capita GDP is a key metric used to assess a country’s standard of living and compare economic success between countries.
Generally, higher per capita GDP indicates higher economic productivity and a higher standard of living.
Due to its open economy and integration in financial networks, South Africa’s economy is influenced by global economic cycles.
However, all emerging economies experienced similar crises, indicating that South Africa must have failed in other areas to have underperformed the others.
Chaudhuri said that the country had underperformed due to the energy system and the labour market, which are the foundations of economic activity and human society, but also the main constraints on the country’s growth potential.
“When these drivers are non-functional, not only does it obviously limit your growth potential, but it also makes other types of policymaking that you would use to ignite growth less effective because they are the foundations,” said Chaudhuri.
Load shedding hit South Africans
Chaudhuri said that while load shedding has moved into the past, the structural constraints imposed by South Africa’s energy sector remain deeply entrenched, with the long-term economic damage already done.
“Already in 1998, there were signals that the system was under pressure, so it has been a very, very long time,” said Chaudhuri.
The impact of these disruptions has been felt for decades. In 2015, BusinessTech reported that load shedding curbed economic growth by as much as 10%, shaving roughly one percentage point off South Africa’s potential economic expansion.
“If we’d had enough electricity since 2007 and it was not a limiting factor, the economy could have been about 10% bigger than it actually was by the end of 2014,” said Efficient Group Chief Economist Dawie Roodt.
“That is more than R300 billion [at the time of reporting], or more than a million job opportunities,” he said.
By 2008, loadshedding had already cost South Africa R300 billion, and subsequent poor price regulation had hindered Eskom from generating the revenue necessary for long-term sustainability.
Chaudhuri said future policymaking should centre on modernising the energy system, such as replacing old coal-fired power stations to sustain the energy supply in the long term.
He said Eskom’s financial position has improved; however, the supplier now requires a system that provides a stable stream of revenue to invest in the energy infrastructure.
He also said that electricity tariff increases, which have weighed heavily on households for decades, have now prompted many consumers to seek alternative sources of supply.
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