Bonds, Currencies, Emerging Markets, Energy, Stocks

South Africa’s Power Crisis Takes A Toll On Its Economy

South Africa Power CrisisSouth Africa’s deepening power crisis, the worst crisis since 2008, triggers nearly daily outages across the nation which has impacted key industries in addition to households, has taken a toll on its economy.

In 2014, South Africa’s economic growth came it at a paltry 1.5%, which is the lowest rate of growth in five years, the Financial Times (FT) reports.

Although the fall in growth can be attributed to the nation’s power crisis, the bulk of the reason for the fall in economic growth was due to an unprecedented five-month wage strike by platinum miners, which was then followed by a strike of over 220,000 metalworkers and engineers for several weeks.

On Wednesday, South Africa’s Finance Minister, Nhlanhla Nene, said that the government’s key challenge was the nation’s energy supply.

As a result of the nation’s deepening energy crisis, the government revised down its forecast for economic growth in 2015 to 2.0 percent, from the previous estimate of 2.5 percent in October.

“Our primary challenge is to deal with the major structural and competitiveness challenges that hold back production and investment in our economy,” Finance Minister Nene said, according to the FT. “Electricity constraints hold back growth in manufacturing and mining and also inhibit investment in housing and raise costs for businesses and households.”

The Finance Minister warned that South Africa’s economy would suffer as “frequent unplanned outages and low plant availability are expected to persist for the next three years,” the FT reported.

South Africa’s economic growth could even be halved again down to a mere 1.0 percent in 2015 should power constraints worsen, Nene said, the BBC reported.

Africa’s most developed economy has been suffering for several years amid the severe energy constraints, a problem which is blamed on poor management and a lack of investment in the key sector, the FT said.

However, the situation has worsened this year as troubled state-owned energy firm Eskom battles to keep its ageing and under-maintained infrastructure running, according to FT.

Eskom's Kendal power station in Mpumalanga, South Africa.  Photo courtesy of Eskom.

Eskom’s Kendal power station in Mpumalanga, South Africa. Photo courtesy of Eskom.

Eskom is also faces a major challenge on the financial front with a R225 billion funding gap up to 2017.

According to Nene, Eskom will receive R23 billion in the form of a capital injection in 2015, which will be raised through the sale of “non-strategic” government holdings in some of its state-owned companies, the BBC reports.

To finance Eskom’s rebuilding of the country’s power infrastructure, the government will raise income taxes –for the first time in twenty years — by one percent for everyone earning over 181,900 rand ($15,863) and hike electricity prices to 5.5 cents per kilowatt hour (kWh) from 3.5 cents/kWh, Nene said, according to Reuters and BBC.

Government revenues are expected to remain depressed, which will likely lead to a budget deficit of 3.9 percent of gross domestic product (GDP) for the 2015-2016 financial year, which is above the previous forecast of 3.6 percent in October, Nene said, according to Reuters.


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow Us On Social Media

Google Translate

Live News Feed via Twitter

Like Us On Facebook

Our Discussion Groups

Facebook Group
LinkedIn Group

Follow EMerging Equity on

Authors / Contributors


Get every new post delivered to your Inbox.

Join 2,644 other followers

%d bloggers like this: