Businesses in South Africa are far more resilient to load shedding, but political squabbles in the near future could lead to further headaches.

According to Stats SA, GDP in Q2 increased by 0.6%, which was made possible by the lessening of load shedding over the period and the increased resistance to power cuts from businesses.

Gross fixed capital formation on the demand side of the economy was highlighted as there was a large increase in imported machinery and equipment investments, particularly renewable electricity infrastructure.

Despite the improved economic performance, the latest RMB/BER Business Confidence Index (BCI) only grew from 27 points in Q2 to 33 points in Q3.

This implies that two-thirds of South African businesses are unhappy with the current operating conditions.

“Business confidence matters for fixed investment and, therefore, economic growth. Low confidence
usually shows up in depressed gross fixed investment; however, gross investment continued to
accelerate,” RMB Chief Economist Isaah Mhlanga said.

Machinery and Equipment saw growth as it is where investments into renewable energy are placed.

However, Other Assets was the largest category for fixed investment, with Mhlanga suspecting that businesses invested heavily in computer software due to the drive for digitisation in post-COVID.

“Both these categories of investments have diverged from the low confidence, which makes sense given that they are survivalist responses to the need to offset load-shedding and to improve efficiency in a digital age,” he said.

“In short, it does not matter whether a business executive has low confidence or not, they have to increase investment to improve business resilience. Outside of these sectors, investment growth has been poor and resembles what is expected in times of low business confidence.”

Big problems on the horizon

However, South Africans should be careful not to overestimate the potential benefits of limiting dependence on Esko’s grid.

Mhlanga noted that there are two possible things that could happen due to the increased resilience of the private sector and households to load shedding.

The first is that load shedding will have a much smaller impact on economic growth in the future compared to the past.

The second implication, however, is that there is an upside risk to economic growth in the medium term.

He added that RMB’s forecasts over the medium term do not incorporate resilience to load shedding for two reasons.

“The first risk is that the 2024 general elections might produce coalition governments at a provincial and national level that might slow or even reverse economic reforms currently underway,” he said.