Eskom dragging South Africa down

While the economy of the Sub-Saharan African region is expected to grow by 4.5% in 2015, the ongoing power crisis in South Africa continues to drag down the country’s growth prospects.

According to the International Monetary Fund’s (IMF) regional economic outlook for the region, South Africa is an exception to the growth trend in Sub-Saharan Africa – held back by continuing problems in the electricity sector.

For perspective, the group noted that other exceptions – Guinea, Liberia, and Sierra Leone – were facing similar halted growth, but due to the Ebola outbreak which continues to exact a heavy economic and social toll in those countries.

In fact, excluding South Africa from its growth projections boosts the region from around 4% GDP growth to as much as 6.5% growth.

“In South Africa, growth was lacklustre in 2014, but is expected to pick up a bit and average 2% in 2015–16,” the IMF said.

The IMF recorded South Africa’s economic growth at 1.5% in 2014.

“Even this (projected 2%) growth is slower than previously expected, with the net terms-of-trade improvement offset by fiscal consolidation and continuing problems in the electricity sector.”

The IMF cutting South Africa’s growth outlook follows a similar move from the World Bank, which also axed the country’s figures in April.

In its Africa Pulse analysis, the World Bank noted the Eskom power crisis in the country would work against the positive fall in oil prices and the expected rebound in activity from the labour strikes in 2014.

Power shortages and uncertainty in policy has weighed on investor sentiment, the bank said, which pushed it to cut its growth outlook for the country from 2.7%, to 2.5%.

In February, Finance Minister Nhlanhla Nene projected 2% economic growth for 2015, down from 2.5% previously forecast in October 2014.

Reflecting sentiments expressed by the World Bank, the 2015 FDI Confidence Index released this week showed South Africa had failed to make the top 25 countries for growth opportunities.

The FDI Confidence Index offers an in-depth view of forward-looking global investment sentiment from senior executives.

In 2014, South Africa ranked 13th in the index.

The cost of Eskom

According to Dawie Roodt, chief economist at Efficient Group, South Africa’s economic growth for the year would be sitting closer to 3% were it not for Eskom.

The economist estimates that power shortages in South Africa have curbed economic growth by as much as 10%, while also preventing mass employment opportunities.

“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.”

“That is more than 300 billion rand ($25.3 billion), or more than a million job opportunities,” said Roodt.

A presentation by the Department of Public Enterprises to parliament at the end of March said power cuts implemented by Eskom cost South Africa’s economy between R20 billion and R80 billion a month.

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Eskom dragging South Africa down