Elevated levels of load-shedding so far in 2023 could cost the South African economy R1.6 trillion in lost economic activity – R400 billion more than last year. 

During a public lecture at the University of Pretoria earlier this week, Electricity Minister Kgosientsho Ramokgopa revealed the severe impact of load-shedding on the South African economy. 

He estimated the impact on gross value added to the economy would be R725 billion. 

This will have disastrous impacts on employment in South Africa, with Ramokgopa estimating that job losses due to elevated load-shedding could amount to 860,000 in 2023. 

The minister said Eskom’s inability to meet electricity demand reliably is detrimental to the government’s ability to help the poor. 

South Africa currently has the highest unemployment rate in the world at nearly 33%, with 75.1% of youth in the country out of the labour force. 

According to the United Nations Development Programme (UNDP), this will negatively affect social cohesion and stability in the country.

In a report last month, the UNDP warned that South Africa’s high unemployment rate, particularly among its youth, is a “ticking time bomb” that could result in social unrest. 

“Youth unemployment in South Africa is a multipronged challenge that limits the earning potential of youth, stymies business growth, threatens social cohesion, and puts pressure on public resources,” the report said. 

“There is no doubt that the high unemployment rate is a ticking time bomb.”

However, in a positive development, recent data indicates that the South African economy is becoming more resilient to the effects of load-shedding as the private sector has reduced its reliance on Eskom. 

In response to questions from BusinessDay, the Electricity Minister’s office said its figures are based on modelling done in April, which assumed higher stages of load-shedding in winter than the country is currently experiencing.

This means that the potential impact of load-shedding on the economy may be less than the minister estimated.

Data shows that load-shedding’s impact on energy-intensive sectors such as manufacturing is diminishing. 

Head of markets research at RMB Isaah Mhlanga told 702 that, historically, the correlation between the manufacturing sector’s performance and load-shedding levels has been very strong. 

Higher stages of load-shedding would typically result in reduced manufacturing output. 

However, manufacturing volumes have remained relatively stable in 2022 and the beginning of 2023 despite the increased intensity of load-shedding. 

Mhlanga attributes this to the increased electricity supply from the private sector, as the amount of non-Eskom electricity supply has steadily increased. 

“In the future, we will have less and less of an impact on economic output from the unstable electricity supply,” Mhlanga said. 

According to data from Eskom, installed solar capacity has doubled in the last 12 months, reaching 4,400 MW in June 2023 from less than 1,000 MW in March 2022.

In the budget speech, the Finance Minister estimated that 2,500 MW of solar generation capacity would be installed in South Africa in 2023.

The country already surpassed this in the first six months of the year, with over 4,000 MW of capacity registered.

“This is extraordinary. The private sector has responded not just for their own needs but also to decarbonise the production of goods to give them access to developed markets,” he said.

Mhlanga believes this trend will continue, with installed solar capacity increasing exponentially in the coming years.

According to data from Absa’s recently released South Africa Q3 2023 Quarterly Perspectives, the South African economy is already resilient to the effects of load-shedding.

This resilience is shown in the graph below, with real GDP increasing slightly from 2021 levels, despite the significant drop-off in electricity distributed by Eskom.

This article was first published on Daily Investor and republished with permission. Read the original here.

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