The shocking cost of load shedding to South Africa’s economy

 ·11 Nov 2021

Dr Francois Stofberg, senior economist at the Efficient Group, has published updated figures on the likely cost of load shedding to South Africa’s economy since it was first introduced.

“A few years back we set out to estimate the economic cost of load shedding in South Africa. Because our focus was purely on the economic side, we excluded the social costs associated with load shedding, which would, of course, have inflated our findings,” Stofberg said in a research note this week.

“Nevertheless, our conservative back-of-the-envelope estimates showed that South Africa’s economy was between 8% and 10% smaller than it could have been if we were not plagued by Eskom’s inefficiencies and inadequacies.”

In today’s terms, after Statistics South Africa adjusted the country’s gross domestic product (GDP) figures earlier in 2021, the economy would, therefore, have been between R360 billion and R450 billion larger, after adjusting for things such as inflation, he said.

“What is even worse is if we consider the one million lost job opportunities resulting from having a smaller economy.”

A difficult calculation 

Stofberg said that the issue with making this calculation is that load shedding is still a daily occurrence in South Africa, with the country on track for its worst year of power outages on record.

He noted that the actual cost of load shedding is growing at an exponential rate, which meant it was difficult to accurately calculate.

“The reason for this is because of the compounding nature of economic growth; it is growth on growth. Put differently, more growth leads to even more growth, or less growth leads to even less growth. So, if one measures the cost of load shedding from an initial point, and load shedding persists, then the 8% to 10% reduction in the size of the economy can quickly become 10% to 12%, 15% to 17%, and so on.

“News about persistent load shedding is, therefore, very worrying. Especially if we are made aware of key contractors who have stopped work on our newest power stations because of payment disputes. Each day of delay adds up.”

Stofberg said that this is particularly concerning as Eskom’s problems are well documented and have largely remained the same over the last decade.

“Changing a chief executive officer or a chief operations officer sounds good and, in many ways, does help, but transformational leaders need to be able to do what they do, and that is transform, a painful process that upsets the status quo.

“But, in Eskom’s case, being a state-owned enterprise that is subject to silly policies, such as our labour laws, this is near impossible and will take a lot longer and cost us a lot more.”

Read: Eskom on track to lift load shedding this weekend: CEO

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